Feb factory output growth, March inflation slows

India's industrial production growth slowed to 0.6 percent in February from a year earlier, government data showed on Friday.

Analysts polled by Reuters had expected output to shrink 0.7 percent annually. Revised data for January showed production at factories, mines and utilities remained unchanged at 2.4 percent.

Separately, annual consumer price inflation slowed to 10.39 percent in March from an annual 10.91 percent in February.

Food prices for consumers rose 12.42 percent on year in March, slower than an annual rise of 13.73 percent in February.

COMMENTARY

ANJALI VERMA, ECONOMIST AT PHILLIPCAPITAL, MUMBAI

"I don't think the numbers are anything to feel very happy about. IIP is still showing a fairly small amount of growth. The growth is still sluggish and there is no substantial improvement in industrial activity except for the base effect. CPI is only showing a marginal improvement.

"I have lowered my FY14 GDP forecast to 5.5 percent from 6.3 percent. I expect a 25 basis point cut in the repo rate on May 3."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The data clearly shows that weaknesses continue in industrial production. Food articles inflation as expected is sticky but given the disproportionate increase in risks to growth I think the Reserve Bank of India will continue with its baby step approach and cut rates by 25 bps at its upcoming annual policy on May 3."

MARKET REACTION

The 10-year benchmark bond yield fell after March consumer inflation slowed from February, raising expectations the central bank will have room to cut interest rates next month. The yield shed 2 basis points to 7.88 percent from levels before the data.

Other markets were rangebound from beforehand. The rupee was trading at 54.45/46 per dollar, while the Sensex was down 1.3 percent.

BACKGROUND

- India's economic growth will remain subdued at 6 percent in 2013/14 and any recovery will be gradual, a Reuters poll of economists showed. Headline inflation is expected to average around 6.5 percent this year, above the Reserve Bank of India's perceived comfort level of around 5 percent, reducing the chances of aggressive policy action to pull the economy out of its slowest pace of expansion in a decade.

- Prime Minister Manmohan Singh urged business leaders last week to keep faith in his Congress-led government's efforts to improve a dire investment climate, without giving details of fresh steps to bring about a recovery in the sagging economy.

- Growth in India's services sector eased in March to its slowest since October 2011 as order books filled at a slower pace, a business survey showed, compounding problems for the economy after earlier data showed manufacturing activity was also losing momentum.

- India's annual car sales fell for the first time in a decade in the financial year just ended and are expected to post subdued growth this year, calling into question bullish expectations that fuelled billion-dollar bets from global manufacturers.

- Heavy imports of oil and gold, together with muted exports, drove India's current account deficit to a record high in the December quarter, soaring to USD 32.63 billion or 6.7 percent of GDP.