MUMBAI, Oct 12 (Reuters) - India's industrial production rose bya higher-than-expected 2.7 percent in August from a year earlier, aftercontracting in July.
Analysts polled by Reuters had expected a rise of 1.1 percent in Augustoutput. Revised government figures released on Friday showed July output fell by0.2 percent.
Manufacturing , which constitutes about 76 percent of industrialproduction, rose an annual 2.9 percent from a year earlier, the federalstatistics office said.
In the April-August period, industrial production expanded anannual 0.4 percent.
COMMENTARY RAJEEV MALIK, SENIOR ECONOMIST, CLSA, SINGAPORE
"The improvement in IIP is encouraging but still indicative of activitystabilising rather than signalling a sustained and strong upturn. It is unlikelyto play an important role in the RBI's upcoming policy.
"In any case, the RBI's walk does not follow its own hawkish talk. It hasalready undertaken stealth easing by improving liquidity conditions that haveprompted banks to cut rates. It is probably the only central bank in the worldworried about inflation but also undertaking actions that facilitate lowerlending rates by banks.
"There is a strong possibility of the RBI cutting rates on 30 October. Thefinance minister has already given a heads up and the government has undertakensome constructive moves although meaningful quantitative and qualitative fiscalcorrection still remains on a wish list. But it is far better for the RBI tocome clean by cutting rates rather than ease while hiding behind a faÃ§ade."
JYOTINDER KAUR, ECONOMIST, HDFC BANK, NEW DELHI
"We would be cautious in saying this marks a revival in growth. Unless theimpediments to investment are removed, there is unlikely to be a significantturnaround in the near future. From the central bank's policy point of view, theheadline inflation number remains crucial, and the factory output print coming alittle higher than expected is not going to make a big difference."
RADHIKA RAO, ECONOMIST, FORECAST PTE., SINGAPORE
"Firmer headline print should not be misinterpreted as a recovery, asactivity stabilises at weaker levels. Higher fuel prices, sticky inflation andhigh borrowing costs will continue to impinge on demand, while sticky inputprices pressure manufacturers' margins. Overall, given weak capex spending andtroubled external sector along with moderation in consumption demand,manufacturing trends are likely to remain depressed for the time being."
ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI
"This number is better than expected no doubt, but it does not change theview on India's growth story, and neither does it move the needle on the centralbank's monetary policy stance. It shows that the industrial sector still remainsweak. The headline inflation data and reform steps from the government willremain key to the monetary policy."
SONAL VARMA, INDIA ECONOMIST, NOMURA, MUMBAI
"It seems the IIP numbers have bottomed out. I am looking at 2.2 percentindustrial growth for the full fiscal year. Consumer durables are doing well.However, it has to been seen whether it can be sustained.
"As of now, we are not expecting any rate cuts in October."
SURESH KUMAR RAMANATHAN, FIXED INCOME AND FOREX STRATEGIST, CIMB, KUALALUMPUR
"The data is better than expected, manufacturing output was better, but muchof it could be related to anticipated increase in diesel prices in September andthere must have been ramming of output before the increase. It could be aone-off driven by anticipated increase in diesel prices rather than actualdemand driven output.
"I don't see any move by RBI this year as mentioned previously, and it'ssteady as she goes for now. The question is if this output was very demanddriven, September numbers will reflect it. 'One swallow doesn't not make asummer.'"
PRAMIT BRAHMBHATT, CEO, ALPARI FINANCIAL SERVICES, MUMBAI
"The consumer goods and the manufacturing sector pulled the IP numbersbeating the industry expectations by huge notches. The data has been a sentimentchanger as the IP numbers have been disappointing for some time and the betterthan expected numbers if supported by a rate cut by RBI in its upcoming policymeet shall be positive for markets.
"The rising capital inflows and better than expected economic numbers fromIndia will force the rating agencies to change their tone in ratings.
"The IP numbers are not widely accepted as genuine or major numbers butshall continue to add to the sentiments."
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
"Though much of the upside was largely pushed by the favourable base effectand sharp increase in capital goods, the stability and recovery in intermediategoods gives some comfort, thus indicating an improvement in the productionactivities.
"We expect the central bank to consider a rate cut in the forthcoming policymeet and would be more keen on taking a look at the forthcoming fiscalannouncements in the interim."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"Across the board, the numbers are presenting that IIP has bottomed out. Theuse-based classification shows seasonally adjusted numbers in capital goods,intermediate goods are looking positive.
"There are early signs of recovery and the fourth quarter numbers will pickup. In terms of the overall economic activity, the second quarter was thebottom.
"The RBI may not completely ignore this number because it does not presenttoo dismal a picture. However, we do not expect the RBI to cut the repo rate butthe RBI will continue to actively manage the liquidity situation.
"The inflation rate could be around 8.25-8.50 percent by December." A. PRASANNA, ECONOMIST AT ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
"The supply side issues are getting resolved, and we expect the core sectordata to pick up in the coming months. On the consumption side, we see growth,also as financing conditions are easing.
"We are not saying there is going to be a strong recovery but compared tothe previous months, the growth is going to improve. The average industrialgrowth for the year is expected to be slightly lower than 3 percent.
"The only comfort the Reserve Bank of India can draw from this is thatthings are not worsening further. However, inflation would still matter, and weexpect the central bank to be on hold on Oct. 30."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"Sequentially it still shows a decline of 1 percent on July but year-on-yearthe number looks healthy because of the base effect but the number is still verybad and shows continued weakness in the industrial sector and is in line withthe signals given by other indicators like core industrial output, exports, PMIand passenger car sales, all of which showed a sharp deceleration in August.
"With inflation hovering around 7.7 percent and industrial sector showingcontinued weakness, we are in a typical stagflationary situation. The RBI willgo ahead with its tried and tested method of reducing CRR (cash reserve ratio)as that also helps banks lower their cost of funds and increase lending. I donot expect the RBI to touch rates on Oct. 30 and deliver just a 25 basis pointCRR cut."
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
"Today's factory output data is much better than expectations, but it isstill not a very healthy number. It really does not change the big picture asfar as the monetary policy is concerned. We still expect substantive liquidityeasing and a 25 basis point cut in the cash reserve ratio on Oct. 30.
"For the full year, we expect IIP at 4.6 percent." UPASNA BHRADWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
"While IIP figures have come better than expected, we expect RBI to considerthe recent spate of remedial measures undertaken by the government and be morewatchful about the upcoming inflation figure before taking a policy decision."
G. CHOKKALINGAM, EXECUTIVE DIRECTOR & CHIEF INVESTMENT OFFICER, CENTRUMWEALTH MANAGEMENT, MUMBAI
"IIP alongside other indicators like oil imports support argument of arecovery in industry sector. The 2.7 percent growth is still however lower byhistorical standards. Interest rate cut would be the most important thing towatch next."
Markets showed muted reaction to the data. The 10-year bondyields briefly fell, but then recovered to 8.17 percent, the rupeeweakened slightly to 52.75 from 52.70 beforehand, while the BSE indexwas still slightly lower.
Both the 1-year and 5-year swap rates edgeddown 1 basis point each to 7.60 and 6.99 percent respectively. BACKGROUND
- India's economic slowdown has bottomed out, but a full recovery requirestough decisions, Finance Minister P. Chidambaram said on Monday, signalling hisintent to push through unpopular reforms.
- The country's annual exports fell for the fifth consecutive month andimports rose in September, pushing the trade deficit to its widest in 11 monthsin the latest bleak data from Asia's third largest economy as it struggles tobalance its finances.
- India's growth slump has passed and the economy will gradually recoverover the next year, a Reuters poll showed, but the rate of expansion for thisfiscal year will still be the weakest in a decade.
- The services sector expanded at its fastest pace in seven months inSeptember as a spurt in new business encouraged firms to hire more staff, asurvey showed last week, suggesting the worst of the economic slump may be over.
- The government looks set to begin dismantling a complex web of regulatoryrequirements that throttle India's infrastructure growth, with plans to set up aspecial body this week to speed up projects in a sector seen as vital toreviving economic momentum.
- The cabinet approved bills last week to attract foreign investment intoinsurance and pensions among a package of new measures to restore confidence inthe economy, although the reforms will face a tough fight in parliament.
- India still faced a one-in-three chance of a credit rating downgrade overthe next 24 months, Standard & Poor's said, although a series of reform stepslaunched in September had slightly improved the country's prospects.
- New Delhi's new-found appetite for economic reform offered a promisingpath to improving growth outcomes for the Indian economy, U.S. TreasurySecretary Timothy Geithner said on Tuesday during a visit to the Indian capital.
- Inflation probably accelerated to its highest level this year in Septemberbecause of costlier fuel after the government cut subsidies, according to aReuters poll, complicating the task of the central bank as it faces pressure toease monetary policy to revive growth.
- In September a government panel warned that India was on the edge of a"fiscal precipice" and should urgently slash fuel, food and fertilizer subsidiesto curb a budget deficit that could hit 6.1 percent of gross domestic productthis fiscal year.
(Reporting by Treasury team, editing by Ranjit Gangadharan)
Keywords: INDIA ECONOMY/ INDUSTRIAL OUTPUT (INSTANT VIEW, UP