India industrial output surges
By Penny MacRae (AFP) – 1 day ago
NEW DELHI — India's industrial output accelerated in August at its fastest clip in 22 months, government data showed Monday, boosting hopes that Asia's third-largest economy was on the mend.
The 10.4-percent year-on-year jump beat market expectations and came on the back of double-digit growth in manufacturing, mining and electricity output.
"India's industrial sector is back, and back with a vengeance," said HSBC economist Robert Prior-Wandesforde, adding the figures represented "a powerful V-shaped recovery" from recent production lows.
But despite widespread speculation about interest rate hikes, analysts forecast the central bank would hold off on monetary tightening at its policy meeting later this month to ensure economic recovery was well-entrenched.
"The ongoing economic recovery is still in early stages, and has been aided by fiscal measures in particular. Any premature tightening would sap the strength of recovery," said Rajeev Malik, economist at Macquarie Securities.
Manufacturing production grew by 10.2 percent in August, electricity by 10.6 percent and mining by 12.9 percent.
Output of consumer durables, such as TVs, fridges and cars, was particularly strong, leaping 22.3 percent.
Finance Minister Pranab Mukherjee called the figures "a good sign" and part of the "process of recovery."
The numbers outpaced economist forecasts of just under 10 percent growth. The data marked the first double-digit output increase since October 2007 and a strong acceleration from December when production shrank by 0.2 percent. Output rose by a revised 7.2 percent in July.
India's sturdy industrial performance is expected to help offset the impact on overall economic growth of weak monsoon rains, the worst since 1972, that have hit agricultural output in the country of nearly 1.2 billion people.
But analysts said the strong numbers were in large part due to government stimulus and aggressive rate cuts, along with a low base effect -- industrial output grew by just 1.7 percent in August 2008.
Credit growth remains low, signalling still weak demand, they said.
Central bank action to control growing inflationary pressures was still several months away, analysts said, with most predicting no rise in borrowing costs before January and many not until at least April.
"The economy must get to a situation where it can propel itself," said Dharmakirti Joshi, economist at Indian ratings firm Crisil.
Inflation is still muted at under one percent.
But prices have become a growing worry with food costs soaring and the government saying inflation will hit six percent by the end of the financial year in March, beyond the central bank's comfort zone of five percent.
However, analysts say hiking rates would be useless to fight rising food prices which have been propelled by the poor rains and hoarding.
India's economic growth has slipped from the nine percent-plus level it logged before the start of the global financial crisis. But rising car sales and other data have pointed to an economic pick-up.
The government says the economy will expand by 6.3 to 6.5 percent this year, still strong by anaemic Western standards. It wants to steer growth back to a minimum of nine percent -- the least it says is needed to make a dent in widespread poverty. |
