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IIP likely ticked up in Aug

by fwire  Oct 9, 2012 07:00 IST

#Business   #India   #markets  

BANGALORE (Reuters) - India's factory output likely grew a modest 1.1 percent annually in August after barely growing at all in July, indicating weak domestic and global demand, a Reuters poll showed.

The index of industrial production (IIP), which measures output at factories, mines and utilities in India, likely inched up a median 1.1 percent year-on-year in August, after posting a negligible 0.1 percent growth in July. The data are due on Friday, Oct 12 around 0530 GMT.

Forecasts from the survey of 26 economists ranged from a contraction of 6 percent to growth of 2.5 percent.

"There's nothing very greatly positive about the (IIP) number. At this particular point in time, it is more statistical than anything else," said Siddhartha Sanyal, Barclays Capital economist who expects output to grow by 2 percent in August.

Sanyal said his growth forecast reflected a low year-ago comparison rather than an improvement in economic conditions.

Infrastructure output, which makes up nearly 38 percent of factory output, grew just 2.1 percent annually in August, data released at the end of September showed.

The August factory output poll's median suggests that factory conditions will remain fragile.

"I think it's (industrial production) going to be pretty stagnant in the next several months and there might be a slight pick-up next year, hopefully, but nothing dramatic," said Capital Economics' senior economist Andrew Kenningham, who forecasts a stagnation in factory output for August.

Recent economic surveys suggest that slow global growth and uncertainties surrounding the euro zone debt crisis will continue to weigh on factories worldwide and challenge a global economy that is trying to outrun recession.

India's exports have fallen annually in five of the past six months as lack of demand from key destinations such as the U.S. and Europe has hurt trade.

The Indian economy faces a multitude of challenges. Growth is languishing near a three-year low of 5.5 percent in the quarter to June. Still, while inflation remains stubbornly high, the Reserve Bank of India looks unlikely to ease monetary policy soon.

A hike in diesel prices, part of a package of reforms that the government launched in mid-September to revive the economy, will likely keep inflation high in October and dampen hopes of an interest rate cut.

"I think they won't cut rates until next year though it is possible that they will have to do something in...response to what the government has done," Kenningham said.

(Reporting by Deepti Govind; Editing by Eric Meijer)