India’s industrial output rises

Thursday, as higher interest rates and rising material costs crimped expansion.
The March figure exceeded analysts’ expectations of a 3,8-percent hike, and was higher than growth in February of 3,65 percent, but expansion remains far below the level of last year when it was clocked at 15,5 percent.
Manufacturing output, which accounts for 80 percent of the industrial output index, rose 7,9 percent in March, about half the level of a year ago.
Economists were surprised by the sudden spike in industrial activity, but warned that local firms would continue to face difficulty in boosting output because of tight lending practices, lower margins and rising commodity prices.
They expect India’s hawkish central bank to continue to raise interest rates in coming months, with annual inflation at near 9 percent – the highest amongst all major Asian economies.
The Reserve Bank of India this month hiked interest rates for the ninth time in 15 months by a bigger-than-expected 50 basis points, warning that short-term economic growth might have to be sacrificed in the fight against inflation.
“The output data is surprisingly high,” said Siddhartha Sanyal, chief India economist with Barclays Capital, who expects the central bank to maintain an aggressive monetary policy stance to tackle the rising cost of living.
India’s Finance Minister Pranab Mukherjee said the rise in factory output growth signalled the start of a sustained upturn in industrial activity.
“Some improvement has taken place, but I expected a little more,” Mukherjee told reporters in New Delhi Thursday.
The March data showed that production of capital goods – such as factory goods or machinery – grew by 12,9 percent year-on-year, lower than the same period last year.
Growth in the production of consumer products also slowed to 12,3 percent from 32,6 percent a year earlier, the figures showed.
Prime Minister Manmohan Singh’s top economic adviser has cut his estimate for economic growth in the current fiscal year by half a percentage point to 8,5 percent, citing inflationary pressures.
The Indian government has estimated that the economy would grow by 8,6 percent last year. Figures are due to be released by the end of June. The government projects 9 percent growth for the current financial year ending next March.
Mukherjee sees inflation easing to between 7,0 and 7,5 percent this fiscal. – AFP.