India's Factory Output Surprise Increase of 6.8%

March 12, 2012
Growth was due to 8.5% increase in manufacturing.

Increasing at the fastest pace in seven months, industrial production output grew by a better-than-expected 6.8% in January, data showed on March 12.

The increased far outpaced analysts' forecasts of a 2.1% increase and prompted economists to take a fresh look at bearish forecasts for the overall growth of Asia's third-largest economy. "If this strength is maintained, we'll have little choice but to take our piece of humble pie and quietly lift the (growth) forecast," said Glenn Levine, senior economist at Moody's Analytics.

"We're still bearish, but we're wavering."

The January data was welcomed by the government, which is due to present its budget this week for the coming financial year to March 2013, and is under heavy pressure to spur economic growth. The government projected last month that economic growth would fall to 6.9 percent in the financial year to March 2012, the slowest since the 2008 global financial crisis. But many economists have pegged growth to be lower.

The January industrial output increase was significantly above the revised 2.5% year-on-year growth in December 2011 and was mainly driven by a strong manufacturing performance, the statistics office said.

Manufacturing production, which accounts for four-fifths of the index, grew in January by 8.5% from a year earlier while electricity output expanded by 3.2%. Production of consumer goods surged 20.2% year on year.

But output of capital goods -- such as machinery -- shrank by 1.5%, suggesting that the output recovery was not broad-based, economists said.

"I had expected industrial production to improve in the first quarter of the year," C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council and a former central bank governor, told television channel CNBC-TV18. But he added the composition of the figures with output of capital goods contracting was "a bit disturbing".

The robust performance came in the face of a string of aggressive interest rate hikes that reduced inflation to a 26-month low of 6.55% but also weakened economic growth. Last week, the central bank, which hiked interest rates 13 times between March 2010 and late last year, moved to crank up lending to spur the economy, cutting the amount of money that commercial banks must keep on deposit. A central bank policy meeting is due this on March 15. Economists said the output data would give the bank scope to assess the inflationary impact of the budget before starting to unwind interest rates from four-year highs.

Copyright Agence France-Presse, 2012

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