Published on Fri, Mar 12, 2010 at 15:34 | Source : Reuters
Updated at Fri, Mar 12, 2010 at 15:53
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Factory output growth eases; seen slowing more
India's industrial output growth eased in January in line with market forecasts and analysts said it could further weaken with an expected rate hike coming on the heels of stimulus withdrawal.
Finance Minister Pranab Mukherjee raised factory gate taxes in the federal budget for 2010/11, the beginning of the unwinding of measures taken to shore up domestic demand and protect growth in the wake of the financial crisis and the economic slowdown.
Analyst expect the central bank's rate hike, coupled with a record $100 billion government borrowing plan for the year to March 2011, to lift market rates and hurt industry output.
Policymakers have said the borrowing would be manageable and not crowd out private firms. They plan to complete a larger portion of the fundraising by September to allow space for other borrowers to tap the market as the economy gathers steam.
India is seen growing over 7.2% in the year to March 2010, accelerating to 8.5% the year after and to 9% in 2011/12.
Economists said India had to accelerate reforms to ensure strong manufacturing growth sustained.
"Unless India moves ahead with reforms like bringing in goods and services tax, it cannot really sustain double-digit growth in manufacturing," Ramya Suryanarayanan, a Singapore-based economist with DBS, said.
"On year-on-year terms industrial production has to decline from February and probably go into single digits by June."
The goods and services tax is expected to be implemented from April 2011.
(Additional reporting by Swati Bhat in MUMBAI and Abhijit Neogy in NEW DELHI; writing by C.J. Kuncheria; editing by Kazunori Takada)
