April 9, 2013 / 3:02 AM / 5 years ago

PREVIEW-India Feb factory output likely fell 0.7 pct yr/yr

By Ashrith Rao Doddi
    BANGALORE, April 9 (Reuters) - India's industrial production
probably shrank in February due to a contraction in
infrastructure industry output and flagging demand, after a
surprisingly strong rise in January.
    A concensus forecast by a Reuters poll of 26 economists
showed factory production likely fell by 0.7 percent in February
on a year earlier, following a 2.4 percent surge in January.
    Before that surprise rise in January, industrial output had
contracted in seven of the previous 10 months.
    Another fall does not bode well for Asia's third-largest
economy, as it struggles to recover after a decade low annual
growth rate in the fiscal year that ended in March.
    "Core infrastructure has dropped very sharply... it wouldn't
be a big surprise at all if IP came off quite sharply," said
Aninda Mitra, an economist at Capital Economics in Singapore,
who forecasts a 3 percent contraction.
    "It overall reflects a generalised slowdown in demand and
production is just responding to that," Mitra added.
    Output in the country's eight key infrastructure industries
, which make up almost 40 percent of factory
production, contracted by an annual 2.5 percent in February
after January's 3.9 percent rise.
    Production in five of those eight declined, and as a result
infrastructure output contracted for the first time since the
new series started in April 2005.
    "Core industry (output) is aligned more towards the
investment-related activities which have not been doing well,"
said Siddhartha Sanyal, chief India economist at Barclays in
Mumbai.
    Capital goods output, a key barometer of investment, fell an
annual 1.8 percent in January and grew just once in the previous
10 months until then.
    The Indian economy has been beset by weak investment,
flagging consumer demand, a slowdown in the rate of implementing
infrastructure projects and ballooning government finances.
    A contraction of industrial output would be out of line with
the HSBC manufacturing PMI survey for February, which showed
factories stepped up production during the month even though
global demand had dented export growth. 
    The March PMI showed manufacturing activity grew at its
weakest pace since November 2011, suggesting production is not
likely to pick up anytime soon. 
    In turn, the recovery in overall economic growth will be
delayed further, adding to the pressure on the Reserve Bank of
India (RBI) to ease policy.
    The RBI has cut its key repo rate twice this year, by 25
basis points each time to bring the rate down to 7.50 percent,
in a bid to stimulate growth, but warned that further easing
would depend on inflation easing and how the current account
deficit is controlled.

 (Polling by Sarmista Sen; Editing by Simon Cameron-Moore)

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