India's industrial data highlight 'dismal' economy

NEW DELHI (AFP) - India's industrial output rose just 0.6 per cent in February, official figures showed on Friday, adding to a string of weak economic data and bolstering the case for more interest-rate cuts.

While the output increase at factories, mines and utilities defied analysts' forecasts of a 1.0 per cent decline, it was much slower than January's 2.4 per cent gain and a sign that Asia's third-largest economy remains in trouble.

"It says quite a lot when we celebrate a 0.6 per cent year-on-year industrial production output (rise), but this is testament to how low expectations have sunk," wrote Credit Suisse economist Robert Prior-Wandesforde.

Manufacturing, which accounts for three-quarters of India's Index of Industrial Production, grew 2.2 per cent in February from a year earlier but output of consumer durables such as refrigerators and stoves fell by 2.7 per cent.

"India's industrial sector remains very weak, mirroring the performance of the rest of the economy," said Moody's Analytics economist Glenn Levine.

Soft domestic demand was highlighted by figures this week showing car sales in the once fast-growing vehicle market suffered their first annual fall in a decade.

The economy's weakness, on top of a slight easing of consumer prices, bolstered hopes of a further interest rate cut at the central bank's May 3 meeting on top of two reductions earlier this year, economists said.

The output numbers "clearly point to a dismal state of affairs in the economy, requiring urgent and bold steps", said the head of industry body ASSOCHAM Rajkumar Dhoot.

Even in the flagship services sector, IT outsourcer Infosys reported weaker-than-expected fourth-quarter results on Friday and forecast slow growth for the year ahead, leading to a 21 per cent fall in its share price.

Offering a glimmer of hope, the industrial data showed output of capital goods such as machinery and equipment - seen as a barometer of investment intentions - rose 9.5 per cent after shrinking 1.7 per cent in January.

The government forecasts the economy will grow by around 6 per cent in this financial year starting April 1 after estimated expansion of 5 per cent last year, its slowest pace in a decade.

The Congress-led government has been battered by a spate of corruption scandals and is keen to revive growth before facing voters in polls due in early next year.

The economy has been hit by high interest rates in the face of stubbornly strong inflation, falling exports and slow investment caused by fears about corruption and disappointment with the government's reform programme.

Analysts say industrial output will remain tepid due to soft global demand as well as supply bottlenecks caused by dilapidated highways, ports and other infrastructure.

Business has urged the government to accelerate reforms to open the economy wider to foreign investment and to speed up infrastructure project clearances.

It has also been calling for aggressive rate cuts to boost consumption.

But inflation makes big rate cuts impossible, the bank has said, underscored by the Consumer Price Index on Friday showing retail inflation slipped in March for the first time in six months but still in double digits at 10.39 per cent.

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