Industrial output growth surges 2.5% in March

Bangalore, May 10 – The country's Industrial output growth surged 2.5% in March compared to a contraction of 2.8% in same month in 2012 according to the IIP data revealed on Friday. However, the Industrial output grew at meagre rate of 1% in 2012-13 compared to 2.9% in the previous fiscal. The surge

in the results for March means that output grew for three months in a row after shrinking in eight months in 2012, suggesting a moderate recovery in the country's factories.

 

A median forecast from a poll of 26 economists by Reuters showed production at factories, mines and utilities probably rose an annual 2%, after a 0.6% rise in February.

 

"Industrial production will recover slowly through the year led by a further improvement in exports," said Robert Prior-Wandesforde, director of Asian economics at Credit Suisse. "And not because of some sort of non-consensus strong global recovery view, but on lagged effects of the rupee depreciation."

 

While the rupee is up nearly 2% against the dollar so far this year, it had depreciated by nearly 4% in 2012 and by 15.6% in 2011 when it was one of Asia's worst performing currencies.

 

India's exports rose for the third straight month in March, offering some relief to the high current account deficit, which hit an all-time high in the quarter to December.

 

Output in the country's eight key infrastructure industries, which make up almost 40% of factory production, rose an annual 2.9% in March after contracting 2.4% in February.

 

Encouragingly, capital goods output, a key barometer of investment, rose an annual 9.5% in February.

 

But consumer demand is expected to remain tepid and weigh on the recovery in factories.

 

Car sales – a proxy for domestic consumer demand – fell for the fifth straight month in March. The overall fall in the 2012-13 fiscal year ending in March was the first in a decade.

 

Although, the HSBC manufacturing survey for March and April showed weak factory activity, the April PMI showed a jump in export orders, underlining the improvement in foreign demand for Indian goods.

 

That augurs well for the country as it is struggling to recover after growing in 2012-13 at its slowest rate in a decade.

 

To help pull the economy out of the slump, the Reserve Bank of India last week cut its benchmark policy rate by 25 basis points for the third time in the year, to 7.25%, but was cautious about further policy easing.

 

"As far as the RBI is concerned, we are getting close to the end of the easing cycle. It is possible that the RBI may shoot another salvo but that could potentially be it," said Leif Eskesen, HSBC's chief economist for India. (Reuters)