Oct IIP at better-than-expected 8.2%; rate cut hopes fade

Moneycontrol Bureau

India's industrial production index rose at a better-than-expected rate of 8.2 percent, its fastest annual pace in nearly a year in October after unexpectedly contracting in September, aided by a statistical spurt in infrastructure-related output.

Analysts polled by CNBC-TV18 had expected a rise of 4.5 percent in October output. Revised government figures released on Wednesday showed September output growth was revised down to a contraction of 0.7 percent from a contraction of 0.4 percent.

Manufacturing, which constitutes about 76 percent of industrial production, rose by 9.6 percent from a year earlier, the statistics office said.

In the April-October period, industrial production expanded an annual 1.2 percent.

There was also a base effect at work. October of 2011 was a terrible time for the industry due to a contraction caused primarily because Diwali fell in that month, which meant lesser number of working. Most companies produced a lot for restocking in September for sales in the Diwali month.

So last year, for all these reasons October was a very weak month and on a base of minus-5. The data for October 2012 was always expected to look much better because 1) it was not Diwali month this time and 2) it was a month before Diwali when a lot of output actually happens.

The October IIP data is very encouraging, Venugopal Dhoot, CMD of Videocon told CNBC-TV18 adding, India is poised for strong growth in consumer durables. "The month of November witnessed good purchases in consumer durables," he said.

However, the bond market came under pressure after the numbers were announced, suggesting that the street has given up on any hopes of a rate cut from the RBI in its December policy.

Chairman of the Prime Minister's Economic Advisory Council C Rangarajan said the RBI is likely to be more focused on consumer price index, which came in at 9.9 percent for the month of November against 9.75 percent in the previous month. Food prices for consumers rose by 11.81 percent in November from 11.43 percent in October.

The central bank has indicated that it is likely to cut rates only in January. Bank of America Merrill Lynch expects the RBI to leave key policy rates unchanged and cut CRR by 0.25 percent at its mid-quarter monetary policy review next week.

"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 (Reserve Bank of India) 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 told Reuters. (More views)