India industrial output surges in October

Tuesday, 14 December 2010 00:01 - - {{hitsCtrl.values.hits}}

New Delhi: India’s annual industrial output in October grew at its fastest clip in three months, powered by demand for consumer durable goods such as cars, though the data is unlikely to prompt the central bank to raise interest rates next week.

The strong growth in output of capital goods suggests that industry had added capacity to meet surging demand ahead of India’s festive season which starts in September.

The 10.8 per cent annual expansion in industrial output was well above the median forecast of 8.5 per cent in a poll and exceeded September’s 4.4 per cent growth.

“The Reserve Bank of India (RBI) has already discounted the fact that there is volatility in the IIP index and they are already factoring that growth momentum is there in the economy,” said Nitesh Ranjan, Chief Economist at the Union Bank of India.

“I don’t think these numbers were a surprise from the RBI’s point of view. Therefore it should not impact policy actions,” he said.

Yesterday’s data comes on the back of an 8.9 per cent expansion in the economy in the quarter through September.

India’s domestic demand-driven economy has expanded at an annual rate of more than 8.5 per cent in the last three quarters.

The RBI is scheduled to review its monetary policy on Thursday. In its early November review, it said there was little chance of another rate increase for the following three months, after it lifted rates six times since March to clamp down on inflation.

However, RBI Deputy Governor K. C. Chakrabarty said that monetary policy remained accommodative and that the central bank could still raise rates despite its earlier guidance pointing to a brief pause.

The industrial output numbers in Asia’s third-largest economy are among the fastest in Asia though China’s annual industrial output growth in October was more than 13pc.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said that growth in industrial output in the current fiscal year ending in March could be a shade less than 10pc.

The RBI has raised its key lending and borrowing rates by a total of 150 and 200 basis points respectively this year as it struggles to curb stubbornly high inflation.

Headline inflation slowed to 8.58pc in October - its lowest level in 10 months but still above the RBI’s perceived tolerance level of 5-6pc.

Inflation data for November is due on Tuesday. Economists say a further slowdown in inflation would lend support to the case for leaving policy rates steady on Thursday.

Manufacturing production, which makes up about 80pc of the overall industrial output, rose an annual 11.3pc in October. A sharp jump in November’s manufacturing PMI suggests factory output will likely stay robust next month as well.