India's industrial production rebounds unexpectedly

New Delhi: India's industrial production unexpectedly rose in November, after declining in the previous month for the first time in 15 years amid a global recession.

Output at factories, utilities and mines increased 2.4 per cent from a year earlier after a revised 0.3 per cent fall in October, the Central Statistical Organisation said here on Monday. Economists expected a 0.8 per cent contraction.

"The unexpected rebound is likely to be brief as external demand remains subdued," said Sherman Chan, a Sydney-based economist at Moody's Economy.com. "Domestic consumption is set to moderate in coming months as the overall economy loses momentum, creating an uncertain business environment and unemployment outlook."

Prime Minister Manmohan Singh, seeking re-election before May, may see his popularity erode as some companies scale back production and fire workers.

Montek Singh Ahluwalia, the prime minister's top economic adviser, says further interest rate cuts and fiscal stimulus may be needed to revive an economy growing at its slowest pace in six years.

Bonds pared gains after the report showed production rose contrary to expectations.

The yield on the benchmark 8.24 per cent note increased to 5.91 per cent from 5.88 per cent before the report. The price fell to Rs116.40 per 100-rupee face amount from Rs116.68. Bond prices earlier rose 3.2 per cent to Rs117.9.

Production may weaken in the months ahead as a continuing strike by truckers disrupts the movement of goods and production dropped at oil refineries as workers stopped work for three days.

More than four million truckers have been on strike since January 5, demanding a cut in diesel prices and a waiver from paying a nationwide toll tax. A separate strike by about 50,000 workers cut production at companies including Indian Oil, the nation's biggest refiner.

Recession in the US, Europe and Japan are hurting demand for made-in-Asia products, forcing companies to trim output. Industrial production in China rose 5.4 per cent in November from a year earlier, the weakest pace in almost a decade. Output in South Korea fell 14.1 per cent.

India's overseas shipments dropped 9.9 per cent in November from a year earlier after contracting 12.1 per cent in October. The decline in exports and output may continue for the next two quarters, Trade Minister Kamal Nath has said.

Concern over companies cutting production and losing profits led to a 53 per cent drop in the benchmark Bombay Stock Exchange Sensitive Index last year.

Manufacturing, which accounts for about 80 per cent of India's total output, rose 2.4 per cent in November from a decline of 1.1 per cent in October, today's report showed. Mining grew 2.4 per cent, compared with 3.2 per cent in the previous month, while electricity production rose 3.1 per cent from a 4.4 per cent gain.

Slowing economic growth and tighter lending by banks is cutting local demand. Car sales declined 19 per cent in November, the most in more than five years.

Tata Motors, India's biggest truckmaker, will stop production at a commercial-vehicle factory for six days, the company said. Hyundai Motor's Indian unit is also cutting output on declining overseas demand and is firing some temporary staff.

To spur growth and stimulate consumer demand, India unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank cut interest rates for the fourth time in less than three months.

Weaker production and exports may hurt India's economic expansion. South Asia's biggest economy may grow seven percent in the year to March 31, from nine per cent or more annually in the previous three years, according to the government.

"The year 2009 is going to be a challenging year," said Sunil Kant Munjal, Managing Director of the Hero Group, India's biggest motorcycle maker.

"We need to deepen the rate cuts and add to the stimulus packages to kick-start demand."