India August industrial output up by 10 pct YoY

It is reported that India’s industrial output rose 10.4% in August from a year earlier higher than estimates and its fastest pace in 22 months.

1. Manufacturing production rose 10.2 percent in August from a year earlier.

2. July's annual growth rate was revised up to 7.2% from 6.8%.

3. Industrial output rose 2.8% in the 2008/09 fiscal year down from 8.5% in 2007/08.

Ms Rupa Rege Nitsure chief economist of bank of Baroda said that "While mining and consumer durables growth is consistently very strong, the growth is still not broad-based. A major part of the high growth this month is also because of the low statistical base last year. The RBI will like to wait for some more time, till firmer signs of growth revival emerge on the exports front before taking any policy action. I expect RBI to remain neutral in the upcoming policy review. The first tightening measure will be taken in the fourth quarter of the current financial year. The central bank is likely to first increase the cash reserve ratio because of the pressure that is getting created due to the global liquidity inflows. The pace at which we are accepting global capital will propel RBI to raise CRR in the last quarter of this year."

Mr Atsi Sheth chief economist of Reliance Equities said that "The numbers are better than expected, especially as the key driver is consumer durables, which tells us that the recovery is firmly in the hands of consumers and is excellent news in a domestic demand-driven economy like India. However, most of this growth would be on the back of festival demand and discounts, and we hope the robust growth shown by other sectors will take over when consumer durables growth slows.”

He added that "We think the August number is a peak for this financial year due to the base effect, and IIP will range between 7-8 percent for the next 3 to 6 months. We don't think the numbers will have any impact on the October RBI policy as industrial production hasn't picked up enough to assuage the RBI's fears over vulnerability of growth.”

Having said this, if the RBI tightens before January, it will be due to inflation fears and not growth-related concerns."

Mr Madan Sabnavis chief economist of National Commodity & Derivatives Exchange said that "I would see a policy change in terms of RBI's approach to tackling inflation. As of now, I won't get euphoric because bank credit is not encouraging. As of now, I don't see RBI doing anything to interest rates."

He added that "Maybe in the January review they would review the situation, but there will be pressure on them to raise rates if inflation gets out of hand."

Ms Ramya Suryanarayan economist of DBS said that "There is pent-up demand and pre holiday demand boosting the overall consumption, and a part of this is temporary. And though this will lift the July to September quarter output to something more than what the market is generally expecting, there will probably be a correction in the fourth quarter. "The month-on-month is a better indicator and it already shows a very sharp rise not just in this month but since June. This is not sustainable at this stage. At this moment, no move is expected in policy. Inflation is rising, production is rising fast, so logically the data does suggest that it makes sense to move, but the central bank will probably wait it out at this meeting. We are forecasting the first hike in the January to March quarter, so we are looking at a hike as early as January."

Mr Saugata Bhattacharya economist of AXIS BANK said that "There are signs of a recovery but we are uncertain about how long this recovery will sustain, especially after the festival season as festival demand would have boosted consumer durables production. We are also looking at how infrastructure projects pick up."

Mr DK Joshi principal economist of CRISIL MUMBAI said that "It is basically due to government spending and recent interest rate cuts. But if you ask me whether it is sustainable at these levels, well, I would say I doubt, because interest rates now on must go up and further fiscal stimulus is not likely, while support by external demand is not seen improving."

Mr NR Bhanumurthy professor NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY NEW DELHI said that "I think it gives leverage to RBI to completely concentrate on inflation. In the October policy, I don't see monetary tightening happening. RBI would like to wait for the IIP and inflation numbers for the next month. But I expect tightening to happen by March 2010."

Ms Gunjan gulati economist of JP MORGAN CHASE said that "The turnaround in today's IP report was anticipated, primarily deriving strength from the heightened demand ahead of the key festivals in September and October. Indeed, the positive outlook for the industrial activity was supported by the rebound in August core sector performance and the September PMI to 55.0. In addition, today's strong growth also drew support from last year's weak growth. Increased festive demand in the fourth quarter of 2009, along with revival in domestic and global economic outlook, will likely keep the industrial activity supported in the coming months."

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