Preview: Industrial output barely grew in November

A worker cuts steel bars inside a factory on the outskirts of Hyderabad August 12, 2011.

BANGALORE (Reuters) - India's manufacturers barely increased production in November compared to the year before as factories closed for holidays a month later than in 2011, a Reuters poll found on Wednesday.

The survey of 25 economists predicted that the index of industrial production (IIP), measuring output at factories, mines and utilities, rose just 0.7 percent year-on-year in November following an 8.2 percent rise in October.

Production was likely hit as Diwali, a widely observed religious festival in India that sees many factories shutting shop for a day or two, was celebrated in November last year. The year before it was in October.

"Comparatively there were lesser working days in November 2012 and hence the base effect," said Aman Mohunta, economist at Nomura.

Forecasts for the notoriously volatile indicator ranged from a contraction of 3.3 percent to growth of 6.3 percent. November's reading will be knocked by the previous year's IIP clocking a high 6 percent.

November's median expectation is lower than the average 1.1 percent growth seen so far in calendar 2012 and is significantly below the double-digit growth rates that IIP posted between late 2006 and early 2008.

"The momentum continues to be slow. We don't expect a spectacular pick up, at the same time we don't expect a further fall either," added Mohunta.

Mohunta saw November's factory output shrinking by 3 percent annually but expects it to grow around 0.5-1 percent in the next couple of months. Other economists share expectations of a pick up over the next few months.

"Infrastructure has been seeing some improvement. We are not seeing a very sharp rebound, but sentiment has improved," said Quant Capital Economist Bhupesh Bameta, adding that annual IIP growth is moving towards the 3-4 percent range in the near term.

Infrastructure output, or core output data, which is typically released before the headline number and accounts for nearly 38 percent of overall industrial production, grew 1.8 percent year-on-year in November, sharply slower than in the previous month.

India has been plagued by sticky inflation, burgeoning deficits, a slowdown in domestic savings, a slump in exports and economic growth that is likely to be the worst in a decade.

Both the Reserve Bank of India and the government have recently expressed concern over the ballooning deficits, particularly the current account gap which was the widest in absolute terms since 1949 in September.

Economists will closely watch December inflation data due to be released on Monday for further signs that the RBI could cut rates. Expectations for a rate cut when the RBI's policy committee meets on January 29 hardened last month after November wholesale price data showed inflation at a 10-month low.

Despite a clamour among politicians and business for lower interest rates with GDP growth in 2012/13 headed for a decade low, the size of the fiscal and external deficits and hitherto stubborn inflation has stayed the central banks' hand.

Economists were wary about predicting a sustainable upturn based on the positive factory production forecasts.

"We are not saying that we are out of the woods. Things are quite bad right now but the direction is positive so that should give some hope for industrial data," Bameta said. (Polling by Shaloo Shrivastav; Editing by Simon Cameron-Moore)