India factory output shows domestic econ resilience

By Rajkumar Ray

NEW DELHI (Reuters) - India's industrial output grew for a second successive month in May as strong domestic demand offset faltering exports, which analysts said added weight to a view the central bank would not cut rates further.

Factory output in May rose 2.7 percent from a year earlier, higher than a downwardly revised rise of 1.2 percent in April and bettering forecasts for a 1.4 percent rise, bolstering hopes activity in big emerging economies was picking up.

"We do believe that the worst is over, but there is a difference between the worst being over and getting back to robust growth," said Montek Singh Ahluwalia, deputy chairman of the government's Planning Commission.

Output had fallen in December, February and March as Asia's third-largest economy was hit hard by a sudden liquidity crunch and the global downturn.

The global slump is still choking exports, which fell an annual 29 percent in May, and hampering the broader recovery.

"The most significant feature is the positive manufacturing growth number despite a strong decline in India's exports," said Sujan Hajra, chief economist at Anand Rathi Securities.

"This just shows that the domestic demand situation is highly resilient."

The benchmark stock index turned positive on the data and extended gains to be up 1 percent in afternoon trade.