Sept industrial production likely rose 2.8 percent

BANGALORE Fri Nov 9, 2012 9:33am IST

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A labourer works inside an iron factory on the outskirts of Jammu October 1, 2012.

Credit: Reuters/Mukesh Gupta

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BANGALORE (Reuters) - India's industrial production likely grew at a steady but slow annual pace in September, lifted by infrastructure output, in what is likely to be further evidence of a sluggish economy, a Reuters poll showed.

The index of industrial production (IIP), which measures the output at factories, mines and utilities, rose an annual 2.8 percent in September, the fastest since February, according to a survey of 25 economists.

That would be only slightly better than 2.7 percent in August, less than a third of the rates of over 9 percent clocked in 2010 and well off the double-digit growth seen during the boom times before the global financial crisis hit in 2008.

It would also show much slower growth than Asian rival China, which clocked a 9.2 percent industrial output annual growth rate in September and is expected to do even a bit better in October.

Factory output accounts for a little more than 15 percent of India's economy, which has grown at annual rates of 5 to 5.5 percent each quarter since the start of the year, the slowest rates in nearly three years.

"There seems to be some stabilisation, but it's coming at a very low level and while there are encouraging signs of some activity in infrastructure, a lot of ground needs to be covered in other aspects," said Jyotinder Kaur, economist at HDFC Bank.

Forecasts ranged from 1.6 percent to 4.1 percent, the narrowest in at least two years of polls, suggesting economists are more certain about a relatively weak outcome.

Earlier this year, the average range was more than twice as wide for an IIP release.

Either way, the start of the festive season in India points to a rise in factory output in the run-up.

"We believe there will be some amount of momentum ... September being just a month ahead of Diwali, where producers tend to start upping their production scale because they expect demand in the festive season to be high," said Yuvika Oberoi, economist at Yes Bank.

Infrastructure output or core output, which makes up nearly 38 percent of industrial production, grew 5.1 percent year-over-year in September, stronger than 2.3 percent in August, government data showed last week.

That index measures the output at eight of India's key infrastructure industries and is widely regarded as a precursor to the IIP data.

Of those eight, economists predict that strong performances by mining, manufacturing and cement will hold up the headline industrial production growth rate at levels similar to August.

Some expect industrial production to benefit, in coming months, from an improvement in domestic demand which has been bogged down by still-relatively high interest rates and rising food and fuel prices.

"On the demand side there are some tentative signs that the industrial slowdown may have bottomed out," said A. Prasanna, economist at ICICI Securities Primary Dealership, who expects industrial production grew an annual 3.4 percent in September.

While the worst might be over for India's economic growth, the recovery will be gradual from that is expected to be the weakest fiscal year expansion in a decade.

But it is far from clear whether manufacturing has passed its weakest point.

The HSBC manufacturing purchasing managers' index (PMI) inched up in October from September's 10-month low as new orders picked up, but provisional government data showed exports fell 11 percent in September from a year earlier.

"If you look at some of the other indicators, the export figures and the business surveys, they are not pointing to any underlying improvement in the situation," said Andrew Kenningham, economist at Capital Economics.

India will probably miss its revised fiscal deficit target for the fiscal year ending in March, casting doubt over the country's efforts to avert a credit rating downgrade, a separate Reuters poll showed on Wednesday.

(Polling by Rahul Karunakar and Shaloo Shrivastava; Editing by Kim Coghill)

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