India's Industrial Output Shows Major Downward Slide

November fell to 2.7% compared to growth of 11% in October

India's industrial output growth fell sharply in November to a 20-month low of 2.7%, data showed on Jan. 12, wrong-footing analysts and posing a dilemma for the central bank. The weak expansion in November was a major swing in momentum. In October, revised figures showed output from factories, mines and utilities had grown 11% from a year earlier.

Economists had expected a 6% rise in industrial output in November, but were taken by surprise, with inconsistent monthly activity data making studies of the underlying trend difficult.

Finance Minister Pranab Mukherjee said the falling numbers were a matter of concern. "We need to take some corrective actions to boost industrial output till the fiscal year-end in March," he said.

Manufacturing output, which accounts for 80% of the industrial output index, rose just 2.3% in November. Economists say the sharp swings in industrial activity were linked to fluctuating demand in the machinery and construction sectors. Capital goods output rose 12.6% in November from a year earlier, after rising 22% in October last year.

The weak data poses a dilemma for the Indian central bank, which had been expected to hike interest rates again soon to tame surging inflation. Economists said they still expected the RBI to raise rates, even though this would have a further dampening effect on growth. India's central bank raised interest rates six times in 2010 to combat headline inflation which at 7.48% is above its tolerance level of 5.5% for the fiscal year, while the government has also gradually withdrawn stimulus measures.

Copyright Agence France-Presse, 2011

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