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India’s March Industrial Output Down 2.3% Y/Y

12 May, 2009

India’s industrial output fell a steeper-than-expected 2.3 percent in March from a year earlier, its third fall in four months, data showed on Tuesday. The figure was sharply lower than a forecast for an annual decline of 0.5 percent in a Reuters poll of economists.

KEY POINTS INDUSTRIAL OUTPUT

March 2009 March 2008 Annual growth in pct: -2.3 +5.5 Consumer goods -0.8 +0.9 Consumer durables +8.3 -2.0 Consumer non-durables -3.6 +1.9 Capital goods -8.2 +20.3 Mining +0.4 +4.9 Electricity +6.3 +3.7

Manufacturing production fell 3.3 percent in March from a year earlier. Industrial output rose 2.4 percent in the 2008/09 fiscal year (April-March), down from a revised 8.5 percent in 2007/08.

COMMENTARY:

ATSI SHETH, CHIEF ECONOMIST, RELIANCE EQUITIES, MUMBAI

“The overall number is not a huge surprise, but we are heartened to see consumer durables continue its upward growth trajectory as we feel this will be the driver of economic recovery in a domestic consumption-led economy like India.”

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

“The IIP data has come in lower than our expectations. The past upward revisions however provide some comfort.”

“We see a recovery in IIP led by consumption in the near term. Overall for FY10, our growth projection for IIP is at 3.5 percent. We are likely to see growth in positive zone from April onwards.”

“However, a meaningful recovery is likely to take place only during the second half of FY10.”

ROBERT PRIOR-WANDESFORDE, SENIOR ASIAN ECONOMIST, HSBC, SINGAPORE

“We were expecting this kind of numbers given the collapse in external demand and the weak PMI data. As expected, cement and car sales numbers are not good lead indicators for manufacturing data.”

“But we still believe the economy is set for a rebound in the second half of the 2009/10 fiscal year due to fundamental reasons such as fiscal stimulus packages, monetary actions, extra oil and gas output later this year, falling commodity prices and robust domestic demand.

“I expect this number to be much better in the months ahead and we are nearing the end of the rate cutting cycle, and may be we have another 25 basis points of cuts more to go from current levels.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

“The number is broadly in line with our expectations after March exports fell 30 percent in dollar terms.”

“With India’s manufacturing export-output ratio at 60 percent, a bad export number is always indicative of a bad IIP number.”

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

“Most probably March figures will be the last ones showing a sharp negative reading.

“The positive side is that electricity output and consumer durables segment has shown good growth. I think April onwards we will see positive reading for IIP.

“Positive numbers in April are likely to be based on good growth shown by many leading indicators in recent months and good growth numbers for power generation and consumer durables.

“Sharply negative growth for capital goods is not a worry because it is based on a very high statistical base of last year.”

D.K. JOSHI, PRINCIPAL ECONOMIST, CRISIL, MUMBAI

“Look at the environment around you. The chances of revival in export demand is very little in the near term. There is also no evidence of domestic revival. I expect industrial output to be near this trough for the next couple of months.”

MARKET REACTION:

The benchmark stock index pared most of its gains, having been up 0.5 percent before the data. The benchmark 10-year bond yield fell 3 basis points to 6.34 percent, and the rupee  was little changed at 49.58/59 per dollar.

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

BACKGROUND:

– Industrial output growth has slowed sharply from annual rates above 10 percent in 2006 and the first half of 2007.

– Since October, the central bank has cut its key lending rate by 425 basis points, and the government has slashed factory gate duties and service tax to protect growth and jobs.

– Prime Minister Manmohan Singh has said the economy grew an estimated 6.5 percent in the just ended 2008/09 fiscal year, which would be its slowest in six years.


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India’s March Industrial Output Down 2.3% Y/Y

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