India's industrial output slides in November

India's industrial output growth fell sharply in November to a 20-month low of 2.7 per cent, data showed Wednesday, wrong-footing analysts and posing a dilemma for the central bank.

The weak expansion in November was a major swing in momentum. In October, revised figures showed output from factories, mines and utilities had grown 11 per cent from a year earlier.

Economists had expected a 6 per cent rise in industrial output in November, but were taken by surprise, with inconsistent monthly activity data making studies of the underlying trend difficult.

Finance Minister Pranab Mukherjee told reporters the falling numbers were a matter of concern.

"We need to take some corrective actions to boost industrial output till the fiscal year-end in March," Mukherjee told reporters.

Manufacturing output, which accounts for 80 percent of the industrial output index, rose just 2.3 per cent in November.

The weak data poses a dilemma for the Indian central bank, which had been expected to hike interest rates again soon to tame surging food inflation which is at a five-month-high of 18.32 per cent for the week ended December 25.

Economists said they still expected the RBI to raise rates, even though this would have a further dampening effect on growth.

India's central bank raised interest rates six times in 2010 to combat headline inflation which at 7.48 per cent is above its tolerance level of 5.5 per cent for the fiscal year, while the government has also gradually withdrawn stimulus measures.

"Rising costs and commodity prices are a big concern," said Rupa Rege Nitsure, chief economist with state-run Bank of Baroda.

"Inflation is in a hyper-sensitive stage," she said, predicting that the RBI would hike rates by 25 basis points twice before the fiscal year ends in March.

Economists say the sharp swings in industrial activity were linked to fluctuating demand in the machinery and construction sectors.

Capital goods output rose 12.6 per cent in November from a year earlier, after rising 22 per cent in October last year.

India has forecast economic growth this fiscal year to March 31 could cross the 9.0-percent mark. The economy grew a forecast-beating 8.9 per cent year-on-year in the July-September quarter.

"There have been fluctuations, but we are on track for GDP growth," said the influential deputy chairman of India's Planning Commission, Montek Singh Ahluwalia.

Indian shares were negative as data came in, but rebounded on bargain hunting, closing up 1.74 per cent or 337.76 points at 19,534.1.

Share prices have fallen in the past week with investors jittery, expecting the RBI to raise rates ahead of its policy meeting on January 25.

 

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