Industrial output soars 8.2 percent in October, inflation jumps

NEW DELHI Wed Dec 12, 2012 4:31pm IST

Labourers work inside an iron factory on the outskirts of Jammu November 12, 2012. REUTERS/Mukesh Gupta/Files

Labourers work inside an iron factory on the outskirts of Jammu November 12, 2012.

Credit: Reuters/Mukesh Gupta/Files

Related Topics

A statue of Ganesh, the deity of prosperity, is carried in a taxi to a place of worship on the first day of the ten-day-long Ganesh Chaturthi festival in Mumbai August 29, 2014. REUTERS/Danish Siddiqui

Ganesh Chaturthi Festival

During Ganesh Chaturthi idols will be taken through the streets in a procession accompanied by dancing and singing, and will be immersed in a river or the sea in accordance with Hindu faith.  Slideshow 

NEW DELHI (Reuters) - A big surge in manufacturing output pushed India's industrial growth to its highest in more than a year in October, a sign that Asia's third largest economy may have turned a corner that strengthens the RBI's case against a rate cut.

The Reserve Bank of India has kept interest rates on hold since April because of stubborn inflation, defying calls from business and politicians for help in fighting a slump that has dragged the economy toward its slowest growth in a decade.

The index of industrial production (IIP) grew 8.2 percent annually in October, data released by the Central Statistics Office showed on Wednesday, well above the 4.5 percent forecast by a Reuters poll.

October factory and mine output showed the strongest growth since June 2011, after IIP growth spent most of this year close to, or below zero percent. However, the industrial index is a volatile indicator that often lurches violently.

Economists said the rebound was largely due to a low base a year earlier, when religious festivals closed factories.

"We should be careful in not over-interpreting this number. With some shifting of festivals in October and more number of working days, we should see some payback in November," said A. Prasanna, an economist with ICICI Securities.

"That said, there are enough signs of optimism. A lot of supply side issues that were there last year, seem to have gone away."

GRAPHIC: Output and exports link.reuters.com/gaj55s

India's year-on-year rate of GDP growth has been below 6 percent for the past three quarters, damagingly sluggish for a country that aspires to at least 8.5 percent annual expansion to provide jobs for its burgeoning population.

This year's sharp slowdown prompted Prime Minister Manmohan Singh in September to push through some of the boldest reform measures of his eight-year tenure despite political opposition, trying to jolt the economy back to more rapid growth.

Those measures have revived domestic markets but until now had not been felt in the wider economy.

TAMING INFLATION

The turnaround in industrial output, which contracted a revised 0.7 percent a month earlier, was helped by a revival in infrastructure development, where the government has been trying to clear red tape restraining large projects.

Manufacturing output, which accounts for the bulk of industrial production and contributes about 15 percent to overall GDP, rose 9.6 percent from a year ago.

Persistently high consumer price inflation, reported on Wednesday at 9.9 percent in November, will provide more ammunition for RBI Governor Duvvuri Subbarao to maintain a hawkish monetary policy stance at a policy meeting on December 18.

The central bank has said any interest rate cut is "highly improbable" at the meeting next week, since it expects price pressures to remain elevated following a hike in the price of heavily subsidised diesel in September. Some economists expect a cut in cash reserve ratios (CRR) for banks, to help liquidity.

Any data signals that the economy is past the trough of its slowdown will bolster the RBI's case that taming inflation should take precedence over reviving growth in its rate-setting policy.

November wholesale price index data, which the Reserve Bank of India gives more weight to in setting policy than the relatively new consumer price index, is due to be released on Friday.

"With inflation likely at 7.8 percent in November, a rate cut is ruled out in December. I do not expect any CRR cut also as the government is maintaining large cash balances with the RBI," said Sujan Hajra, chief economist with Anand Rathi securities in Mumbai.

Indian markets showed little reaction to the data as analysts dismissed the gain in output as a likely one-off and highlighted the volatile nature of the index. (Additional reporting by Delhi bureau and India Treasury, Equities and Market teams in MUMBAI; Writing by Frank Jack Daniel; Editing by Alex Richardson)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Market Eye

REUTERS SHOWCASE

Coal Block Allocation

Coal Block Allocation

Government urges Supreme Court to not cancel some 'illegal' coal mines  Full Article 

Modi in Japan

Modi in Japan

Japan and India agree to boost strategic ties at summit  Full Article 

HSBC PMI

HSBC PMI

Factory activity expands at slower clip in August.  Full Article 

Market Outlook

Market Outlook

Indian shares headed for correction, but outlook strong - BofA Merrill.  Full Article 

India Infrastructure

India Infrastructure

RBI rule handicaps India's infrastructure hopes  Full Article 

Book Talk

Book Talk

Reema Abbasi and a glimpse of Pakistan’s Hindu past  Full Article 

China Economy

China Economy

Retreat in China's PMIs heightens calls for policy easing.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage