UPDATE 1-India factory output shows domestic econ resilience

By Rajkumar Ray NEW DELHI, July 10 (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. 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." India is among a handful of Asian nations, along with China and South Korea, to see signs of recovery emerging following the worst global economic contraction since the Great Depression. Manufacturing output, which accounts for about 80 percent of India's industrial production, rose an annual 2.5 percent in May compared with revised growth of 0.4 percent in April. And the Markit Purchasing Managers' Index (PMI) showed earlier this month that manufacturing activity expanded for a third straight month in June. Car sales have risen in annual terms for the past five months. They rose 7.8 percent in June, as buyers were attracted by a spate of new models and lower borrowing costs. On Wednesday, the International Monetary Fund revised upwards India's growth forecast for 2009, even as world output is seen contracting more than earlier thought. Lower factory and farm output dragged the country's overall economic growth to a six-year low of 6.7 percent in 2008/09 (April/March) from 9 percent the previous year. Industrial output rose 2.6 percent in 2008/09, sharply lower than 8.5 percent in 2007/08, as the global economic crisis and high interest rates hurt domestic demand and exports. On Monday, the government projected budget spending to rise more than a third in 2009/10, and offered tax relief to individuals to lift demand. (Writing by V. Ramakrishnan; Editing by John Mair) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: INDIA ECONOMY/INDUSTRY (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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