India's May IIP rises 2.4 per cent, beating expectations
India’s index of industrial production (IIP), a key measure of industrial output, grew at 2.4 per cent in May 2012 from the same period in the past fiscal, against expectations of 1.8 per cent, suggesting only a modest growth in supply parameters.
The rate of IIP growth is higher than the (-) 0.9 per cent in April, a number that was revised downwards from the earlier 0.1 per cent.
A Thomson Reuters poll had suggested an increase ranging between no growth at all and 4.8 per cent. The forecast is well below the average of around 9 percent annual growth in industrial output each month before Asia’s third largest economy began to slow down in the second half of 2011.
Experts welcome the rise, but said it would do little to change the mind of the Reserve Bank of India, which has resisted cutting interest rates in the face of stubbornly high inflation. "The room to cut rates is limited because the slowdown is supply-driven, and it will not help much to ease policy rates," said Leif Eskesen, chief economist for India and ASEAN at HSBC.
The central bank is scheduled to have its next policy review at the end of this month; wholesale inflation numbers, which are used by the RBI as one of the factors in its monetary policymaking, are due next week.
Capital goods output fell to a negative 7.7 per cent. Consumer goods, on the other hand, grew at a more robust 4.3 per cent, driven by a 9.3 per cent surge in durables and a niggardly 0.1 per cent growth in non-durables.
Capital goods, a key investment indicator, has risen only once in the last eight months, the biggest drag on the overall index. The lack of growth in capital goods, such as mhinery and equipment that are key inputs for industry, suggests that companies are wary of making investments in high-interest, uncertain economic climate.
Core sector growth, comprising eight key industries that are the primary drivers of industry, grew 3.8 per cent in May, only slightly more than the 3.1 per cent in April. Key areas such as mining, manufacturing and electricity grew at (-)0.9, 2.5 and 5.9 per cent, respectively. The mining sector, in particular, has been hit by judicial directives banning mining in a number of states due to the high incidence of illegal extraction.
Manufacturing showed some promise of an uptick as 12 out of 22 industry groups showed positive growth in May. Machinery and equipment grew 13.7 per cent while facbricated metal products grew 12.6 per cent. However, electric machinery and apparatus, which are increasingly the industrial norm were a dampener at (-) 28.6 per cent, clearly reflecting industry's reluctance to pour money into capacity.
The slow growth in the core sector was largely on account of a contraction in half of the industries in that index. Core sector growth also belied a steady HSBC Purchasing Managers’ Index (PMI), which maintained its position in May, even though PMI trends do not necessarily translate into IIP growth. The index has remained above the 50-mark that divides growth from contraction for more than three years.
The core sector comprises key infrastructure industries of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, and accounts for about 38 per cent of overall industrial output. Trends in infrastructure data are typically reflected in the core sector’s headline number.
The numbers suggest that the economy will continue to grow at a more leisurely pace than the 8 per cent and more it had seen in the past two financial years. In the financial year ending March 2012, India’s economy clocked a 6.5 per cent rate of growth, dragged down by a nine-year low of 5.3 per cent in the March quarter.
While that is more than what most developed nations can boast of, the slower pace of growth is ominous for the Indian economy, which continues to struggle with a high fiscal deficit, waning global investor interest, a high interest rate regime, and indecisiveness at the highest levels of government that has prevented key economic reforms from being carried out.
India's May IIP rises 2.4 per cent, beating expectations
Industrial output growth picks up in May, up 2.4 pct
(Reuters) - India's industrial output picked up more than expected in May, bolstering the case for the Reserve Bank of India (RBI) 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 percent 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 percent increase, was the largest growth in output since February.
India's industrial output data is volatile -- the government revised last month's number to a 0.9 percent contraction after initially coming in flat. But IIP is nevertheless taken as a barometer of economic growth, which fell to 5.3 percent in the quarter up to March, the slowest pace in nine years.
Analysts greeted the number as moderately positive but said the RBI 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."
GRAPHIC - India output/exports: link.reuters.com/gaj55s
Capital goods, a key investment indicator that has shown growth only once in the past 9 months, slumped 7.7 percent in May.
Prime Minister Manmohan Singh, a veteran economist, took charge of the finance ministry last month 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 pct fiscal deficit.
The Sensex gained 7.5 percent in June compared with a 3.5 percent gain in the MSCI Asia-Pacific ex-Japan index. The rupee has gained 3.5 percent since sinking to a record low of 57.32 against the dollar on June 22.
Markets showed little reaction to the industrial output. As of 11:25 a.m. India time (0555 GMT), the Indian rupee had weakened to 55.66/68 per dollar from around 55.58 before the data, tracking weaker global markets.
Battling stubbornly high price rises, the Reserve Bank of India resisted pressure from banks and businesses to cut its key repo rate from 8 percent last month and may again stick to its guns at its end-of-the month meeting.
India's Wholesale Price Index, the benchmark inflation indicator, is published on Monday for June. A Reuters poll predicted June inflation hitting a 2012 high of 7.62 percent, with lower global oil prices likely to be offset by a large jumps in the cost of potatoes and tomatoes because of delayed rainfall.
Manufacturing, which constitutes nearly 76 percent of industrial output, grew 2.5 percent in May from the year-ago period, Thursday's data showed.
Industrial output growth picks up in May, up 2.4 pct | Reuters
