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Economy Rebounding: September Industrial Output Up 9.1% Year On Year

12 November, 2009

India’s industrial output rose at a faster-than-expected 9.1 percent in September from a year earlier, data showed on Thursday.

The median forecast in a Reuters poll was for an annual rise of 7.3 percent.

– Manufacturing production rose 9.3 percent in September from a year earlier.

– August’s annual growth rate was revised to 11 percent from 10.4 percent.

– Industrial output rose 2.6 percent in the 2008/09 fiscal year (April-March), down from 8.5 percent in 2007/08.

COMMENTARY:

ATSI SHETH, CHIEF ECONOMIST, RELIANCE EQUITIES, MUMBAI:

“The number beats even our bullish forecast (of 8 percent) and affirms that the economic recovery is on track.

“However, we believe the number was assisted by pre-festival demand and perhaps consumer durables growth will be set to moderate in the post-festival season.

“At the same time, capital goods acceleration bodes well for the future trend in industrial output as companies seem to be taking advantage of recovering global demand, the low interest

rate environment and still-benign input costs.”

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI:

“Definitely on the stronger side. Was especially surprised by the capital goods numbers. This has also possibly pushed up the manufacturing growth number much above our own expectations.

Going forward, the rest of the year should continue to see close to double-digit or even double-digit IIP numbers. The average for the year should be close to 8.0-8.5 percent.”

DEEPALI BHARGAVA, ECONOMIST, ING VYSYA BANK, MUMBAI:

“The data release only reaffirms the sequential growth in IIP. Revival in manufacturing is increasingly being established, as is also reflected in the intermediate goods’ growth.

“While most of the impact is visible in the fiscal stimulus-driven sectors, broadbased revival in credit growth would be important for a sustained recovery.”

N R BHANUMURTHY, ECONOMIST, NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY, NEW DELHI:

“It is higher than expectation. But to make a strong statement about robust industrial recovery, we need to watch the data for one more month.”

“However, it provides room for the RBI to work on tightening the monetary policy, given the inflationary pressure.”

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI:

“Exports have not recovered much. But irrespective of that, production number remains strong, which means that domestic demand is still strong. In October, possibly there may be some weakness in the data sequentially due to inventory overhang, but year-on-year it could be good.”

“I don’t think this production number would prompt RBI to take any action. I expect inflation to be the key factor for determining the timing of rate hike. I see a rate move and CRR (Cash Reserve Ratio) hike in January.”

RAMYA SURYANARAYANAN, ECONOMIST, DBS SINGAPORE:

“It’s extremely strong. Month-on-month it has grown about 17 percent annualised after seasonal adjustments. If this pick-up is not because of consumption, then it won’t sustain.”

“The base case is that it is rising very fast and should moderate a bit in October, November. I don’t think manufacturing can grow at this rate… the rise is mainly on account of pent-up demand.

“Industrial production should settle down around 7-7.5 percent month-on-month, seasonally adjusted, annualised in another few months.”

JYOTINDER KAUR, ECONOMIST, HDFC BANK, NEW DELHI:

“It is much above expectations, even if you adjust for the positives ahead of Diwali in October. It is reiterating the fact that the policy environment continues to support industrial growth.”

“I think the RBI will hike the repo and reverse repo rates at the January policy, but banks are not likely to immediately follow by raising lending rates. That will maintain sweet spot for industrial growth.”

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

“It is comforting that despite the high statistical base, the IIP (Index of Industrial Production) is healthy driven by manufacturing growth of 9.3 percent.”

“Still, I feel we can’t conclusively say that recovery has entered a sustainable phase. Unless exports revive, economic recovery will not be broad based.”

“I don’t expect RBI to start tightening monetary policy until credit growth revives and exports pick up.”

“This industrial output data has been good because of the sectors that benefitted from the stimulus package, like construction, automobile and low cost housing.”

MARKET REACTION:

– The partially convertible rupee little changed at 46.47/48 per dollar after industrial output data. It had closed at 46.29/30 on Wednesday.

– The 10-year bond yield rose 2 basis points to 7.36 percent after the data. It had closed at 7.33 percent in the previous session.

– The 30-share BSE index reversed direction to be up about 0.2 percent, from being down about 0.3 percent before.

LINKS: Ministry of Statistics and Programme Implementation website, click www.mospi.nic.in

BACKGROUND:

– Prime Minister Manmohan Singh has said the economy could grow 6.5 percent in the year to March 2010, and 7 percent the following year.

– Ministers and officials said some of the fiscal and monetary stimulus could be withdrawn next year.

– The economy grew 6.7 percent in 2008/09, slowing from rates of 9 percent or more in previous three years.

– The Planning Commission has forecast 7.8 percent growth in industrial output in 2009/10 (April/March).

– Drought in almost half of the country and floods in the southern and western parts have hurt crops and farmers’ income, and could dampen demand for consumer goods from close to two-thirds of India’s 1.1 billion-plus population.

– The 2009/10 budget offered tax breaks to industrial units, natural gas projects and stepped up spending on infrastructure.

– The central bank kept its key lending rate unchanged at its October review after slashing it by 425 basis points between October 2008 and April to help revive a slowing economy.

(Reporting by India Treasury team; Editing by John Mair)

 


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Economy Rebounding: September Industrial Output Up 9.1% Year On Year

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