India's industrial output turns positive, rises 0.1%

NEW DELHI (AFP) - India's industrial production edged into positive territory Wednesday but the 0.1 per cent rise posted for January was nowhere near the strong recovery the government had hoped for ahead of national elections.

The marginal increase in output by factories, mines and utilities in January from a year earlier, marked the first acceleration in four months.

It was also a better result than the 0.6 per cent contraction financial markets expected.

"The data shows India's beleaguered economy moving in the right direction, but still far from healthy," said Capital Economics economist Miguel Chanco.

"Manufacturers are clearly still struggling for momentum, amid subpar domestic demand," he said.

The numbers carry added weight as they are among the last key indictors about the health of the economy, before staggered elections kick off early next month in the world's largest democracy.

The scandal-tainted Congress-led government had hoped the "green shoots" of economic recovery would be clearly visible before voting took place.

But the anaemic output rise reflected stumbling consumer demand in the face of high interest rates, creaking infrastructure, choking productivity, and a slew of political scandals, that have discouraged investment.

Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by 0.7 per cent in January.

Production of capital goods such as plant equipment - a strong indicator of investment intentions - contracted by 4.2 per cent.

The influential Confederation of Indian Industry (CII) called the increase in total industrial output, led by a strong rise in electricity production "small consolation".

"The (economic) slowdown is yet to show any visible sign of bottoming out," the industry body said.

Separate figures Wednesday showed consumer price inflation fell year-on-year to a still hefty 8.10 per cent in February from 8.79 per cent in January.

The consumer inflation drop gives the central bank more room to manoeuvre but is unlikely to trigger any immediate shift in its hawkish stance, economists said.

The central bank's next monetary policy statement is slated for April 1.

The government, which opinion polls suggest is headed for defeat, has forecast economic growth of 4.9 per cent in this financial year to March but many economists expect growth in the low four-per cent range.

The economy expanded by 4.5 per cent the previous year, the weakest pace in a decade - half the blistering pace recorded in the so-called "Indian summer" of the last decade when expansion was near double-digits.

At the moment, the Hindu nationalist Bharatiya Janata Party led by firebrand leader Narendra Modi who is perceived to be more business friendly is tipped by opinion polls to form the next government.

But if, as some analysts worry, a coalition of regional parties without a common economic reform agenda take the helm, it could provoke capital flight, thereby increasing borrowing costs and weakening the rupee, and delaying economic recovery.

The latest data came after figures Tuesday showed India's merchandise exports fell nearly four per cent in February - the first decline in eight months, dampening hopes of an export-led economic recovery.

Still in one key piece of good news, India's current account deficit - the widest trade measure that hit a record high last year - has narrowed dramatically in the past few financial quarters to a four-year low.

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