January factory output likely rose 1.2 percent

BANGALORE Tue Mar 12, 2013 9:18am IST

A worker tends to yarn-spinning equipment at a factory in Coimbatore, about 500 km (310 miles) from Chennai, January 8, 2013. REUTERS/Babu/Files

A worker tends to yarn-spinning equipment at a factory in Coimbatore, about 500 km (310 miles) from Chennai, January 8, 2013.

Credit: Reuters/Babu/Files

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BANGALORE (Reuters) - Indian factory production in January probably rose from a year earlier after shrinking in December, boosted by a pick-up in domestic demand and infrastructure output at a three-month high, a Reuters poll showed.

Industrial production (IIP), which includes output at factories, mines and utilities, was estimated to have risen an annual 1.2 percent in January after unexpectedly falling 0.6 percent in December, according to this week's poll of 24 economists.

If realised, that consensus would fuel the widely held view that the worst is likely over for flagging Indian factories after industrial output grew in just six months of last year.

"Consumption and investment is picking up, which goes to suggest that from a purely domestic demand standpoint, the bottoming out of activity which many of us have talked about is materialising," said Aninda Mitra, India economist at Capital Economics.

"And in that context, some modest pick-up in industrial activity should not be unexpected," added Mitra, who is expecting significant growth of 3.2 percent.

Output in the country's eight key infrastructure industries, widely known as the core sector and accounting for almost 40 percent of factory production, grew an annual 3.9 percent in January, its fastest in three months.

Production in four of those eight industries - coal, steel, electricity and refinery products, which account for a little over a fourth of the IIP - rose in January and likely had a bearing on overall industrial production.

"Mining and electricity output generation has improved over January, as have some segments of manufacturing," said Abhishek Upadhyay, an economist at Axis Bank.

HSBC manufacturing PMI surveys also showed domestic orders have boosted Indian factory activity so far this year, however weak global demand has hurt exports.

Renewed concerns about the euro zone sovereign debt crisis, fueled by an inconclusive Italian election, have also slowed India's economic progress.

The euro zone, India's largest trading partner, has been ravaged by a three-year old sovereign debt crisis that has threatened to push the global economy into a new downturn.

To support growth the Indian government last week unveiled a surge in spending - despite expectations of an austere budget to shore up its finances - and imposed new taxes on the rich and large companies.

The Reserve Bank of India cut its key policy rate for the first time in nine months in January but said any further policy easing would depend on how inflation and the fiscal deficit is controlled.

(Addtional reporting by Deepti Govind; Polling by Ruby Cherian; Editing by Jacqueline Wong)

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