India's IIP Surges 8.2 % In October Beating Expectations

 
on December 12 2012 6:59 AM

India's industrial output jumped 8.2 percent in October -- its fastest pace in more than a year -- beating the analysts' expectations of a 4.5 percent rise, according to the official data released Wednesday.

 The cumulative growth in the April-October period of 2012-2013 over the corresponding period of the previous year expanded by 1.2 percent, suggesting a turning around in Asia’s third-largest economy.

The mining sector and the manufacturing sector recorded the strongest growth since June 2011, following the strong attempts by the government to boost infrastructure projects. The manufacturing sector that contributes to 76 percent of the industrial production rose 9.6 percent in October compared to the same month last year, according to the data released by the Central Statistics Office of the Ministry of Statistics and Program Implementation.  

Though the positive data bring cheers, economists feel that the surge in growth is also because of the weak base year. Industrial production witnessed a sharp contraction in October last year as the number of working days was less due to festival holidays that fell in October last month. There were no major festivals in October this year.    

"We should be careful in not over-interpreting this number. With some shifting of festivals in October and more number of working days, we should see some payback in November," said A. Prasanna, an economist with ICICI Securities, as reported by CNBC TV.

"That said, there are enough signs of optimism. A lot of supply side issues that were there last year, seem to have gone away."

Though the report is expected to give strength for the industries' demand for monetary easing, analysts believe it is unlikely that Reserve Bank of India (RBI) will change the key rates.

Experts believe that the RBI will be considering the Consumer Price Index, which came in at 9.9 percent in November against 9.75 percent in the previous month, while taking a decision on rate cuts.

“To a large extent the uptick in industrial performance is optical, masking the reality, largely because of base effect. I don't expect this kind of buoyancy in manufacturing to sustain going forward as five industrial sectors are showing negative growth. I don't think the RBI should be swayed by this number and should address the underlying weakness in the economy by cutting rates," Brinda Jagirdar, chief economist of State Bank of India, was quoted as saying by Reuters.

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