August IIP grows at 2.7% on low base effect

The Index of Industrial Production (IIP) for the month of August grew at 2.7 percent versus a paltry -0.2 percent (revised from 0.1) in July. In the April-August period, industrial production expanded an annual 0.4 percent.

A CNBC-TV18 poll expected the industry to grow very marginally just close to about 0.94 percent versus a figure of 0.1 percent in the previous month.

Manufacturing, which constitutes about 76% of industrial production, grew an annual 2.9% from a year earlier, the federal statistics office said. The mining sector grew at 2% emerging from its contraction of (-) 5.5% YoY.

However, the more disappointing figure was the September Consumer Price Index (CPI) number. The September CPI combined inflation rose 9.73% year-on-year, up 10.03% month-on-month. (read more here)

With inflationary expectations still high, the RBI is likely to use OMOs and CRR to manage liquidity. It is unlikely to cut repo rates in October.

The government has been on a mission to change its image, announcing a spate of reforms since mid-September, in an attempt to jumpstart growth weighed down by high fiscal deficit and battered business sentiment.

(Expert views on August industrial output)

Samiran Chakraborty, Regional Head Research- India, Standard Chartered Bank expects the turnaround in sentiment to continue ahead. "The better monsoon from July onwards might have helped," he told CNBC-TV18. 

BACKGROUND

- India's economic slowdown has bottomed out, but a full recovery requires tough decisions, Finance Minister P. Chidambaram said on Monday, signalling his intent to push through unpopular reforms.

- The country's annual exports fell for the fifth consecutive month and imports rose in September, pushing the trade deficit to its widest in 11 months in the latest bleak data from Asia's third largest economy as it struggles to balance its finances.

- India's growth slump has passed and the economy will gradually recover over the next year, a Reuters poll showed, but the rate of expansion for this fiscal year will still be the weakest in a decade.

- The services sector expanded at its fastest pace in seven months in September as a spurt in new business encouraged firms to hire more staff, a survey showed last week, suggesting the worst of the economic slump may be over.

- The government looks set to begin dismantling a complex web of regulatory requirements that throttle India's infrastructure growth, with plans to set up a special body this week to speed up projects in a sector seen as vital to reviving economic momentum.

- The cabinet approved bills last week to attract foreign investment into insurance and pensions among a package of new measures to restore confidence in the economy, although the reforms will face a tough fight in parliament.

- India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, Standard & Poor's said, although a series of reform steps launched in September had slightly improved the country's prospects.

- New Delhi's new-found appetite for economic reform offered a promising path to improving growth outcomes for the Indian economy, US Treasury Secretary Timothy Geithner said on Tuesday during a visit to the Indian capital.

- Inflation probably accelerated to its highest level this year in September because of costlier fuel after the government cut subsidies, according to a Reuters poll, complicating the task of the central bank as it faces pressure to ease monetary policy to revive growth.

- In September a government panel warned that India was on the edge of a "fiscal precipice" and should urgently slash fuel, food and fertilizer subsidies to curb a budget deficit that could hit 6.1 percent of gross domestic product this fiscal year.

(With inputs from Reuters)