India industrial output growth picks up

New Delhi: India’s industrial output picked up more than expected in May, bolstering the case for the central bank to keep interest rates high at its next policy meeting as a slow start to the monsoon puts pressure on inflation, especially food prices.

Industrial production rose 2.4 per cent in May from a year earlier, driven by manufacturing growth, data released on Thursday showed. The number, which was ahead of a Reuters poll forecast for an 1.8 per cent increase, was the largest growth in output since February.

India’s industrial output data is volatile — the government revised June’s number to a 0.9 per cent contraction after initially coming in flat. But IIP is nevertheless taken as a barometer of economic growth, which fell to 5.3 per cent in the quarter up to March, the slowest pace in nine years.

Analysts greeted the number as moderately positive but said the central bank would pay more attention to wholesale price inflation published next week when deciding monetary policy at a July 31 meeting.

“Today’s number is better than last month’s but it does not signal that we are in the middle of an upturn,” said Sanjay Mathur, head of research and strategy at RBS in Singapore.

“Unambiguously, it is a weak number for a domestic demand-driven economy like India. With the Reserve Bank of India looking at fighting inflation, it is likely to hold its rates steady in the July review.”

Capital goods, a key investment indicator that has shown growth only once in the past nine months, slumped 7.7 per cent in May.

Prime Minister Manmohan Singh, a veteran economist, took charge of the finance ministry in June vowing to revive the economy’s ‘animal spirit’ by attracting investment and speeding up infrastructure and power projects.

India’s battered stock market and rupee have performed better since Singh took over the ministry, with investors hopeful he can usher in economic reforms and reduce last year’s gaping 5.8 per cent fiscal deficit.

India’s benchmark stock index gained 7.5 per cent in June compared with a 3.5 per cent gain in the MSCI Asia-Pacific ex-Japan index. The rupee has gained 3.5 per cent since sinking to a record low of 57.32 against the dollar on June 22.