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India industrial output rises surprise 8.2%

The industrial output of Asia’s third-largest economy marked a big improvement

Gulf News

New Delhi: India’s industrial output grew by 8.2 per cent on-year in October, the fastest in 16 months, official data showed on Wednesday in the first strong sign the worst may be over for the economy.

The industrial output of Asia’s third-largest economy marked a big improvement from a revised contraction of 0.7 per cent in September and far outpaced market expectations of a five-per cent rise.

“We think the lowest point is behind us — we do see a mild, gradual recovery taking shape,” Shubhada Rao, chief economist at India’s Yes Bank, told AFP.

Manufacturing climbed 9.6 per cent from a year earlier while capital goods production — output of factory machinery and other equipment — surged 7.5 per cent, involving investment suggesting anticipated stronger future demand.

The 8.2 per cent rise in output from India’s factories, mines and utilities was inflated by a weak base effect from a year ago and got an extra boost from the religious festival season when buying is considered auspicious, economists said.

But even then, Credit Suisse economist Robert Prior-Wandesforde said “the economy has bottomed and is beginning to strengthen” although he said there would be bumps on the way.

Output accelerated at its quickest pace since June 2011 and shows the economy was “on the mend”, he said.

The figures represented the best economic news in months for the scandal-scarred government of Prime Minister Manmohan Singh, who is keen to revive the economy with Congress-led administration facing elections in 2014.

India’s once-booming economy has been hit by continuing high interest rates in the face of stubbornly strong inflation now running at 7.45 per cent, falling exports as the global economy struggles and slow investment.

With India striving to avert a ratings agency downgrade of its sovereign debt to junk status, Singh announced a string of reforms in September, opening up retail and other sectors to wider foreign investment to drive the economy.

He has vowed to press ahead with the drive even though the recent reform blitz has cost the government its parliamentary majority with the exit of a key ally, and stirred huge opposition from lawmakers.

Overall economic growth has been stuck at three-year lows with India posting expansion of 5.3 per cent in the quarter to September.

Eyes now are focused on price data due on Friday that economists say may show inflation rose in November — which would give the central bank little headroom to ease high borrowing costs and spur the economy.

“The positive impact on the real economy (of the government’s economic reforms) will by no means be immediate,” Jyoti Narasimhan, economist at research house IHS Global Insight, cautioned.

“It will take some time for the new structural and regulatory reforms to filter through into investment and economic growth, meaning near-term industrial and economic momentum will remain tepid,” she said.

The Bombay Stock Exchange benchmark 30-share Sensex index was up 0.19 at 19,432.50 in midday trade.

India’s output rise comes as industrial output in neighbouring China has been growing faster, rising 10.1 percent in November from a year earlier - a further signal of strength in the world’s second-largest economy.