December industrial surges; stimulus unwind likely
India's industrial output grew at its fastest pace in at least a decade in December, in further evidence of a strong economic recovery that could allow the government to follow the Reserve bank of India in withdrawing stimulus.business Updated: Feb 12, 2010 13:04 IST
India's industrial output grew at its fastest pace in at least a decade in December, in further evidence of a strong economic recovery that could allow the government to follow the Reserve bank of India in withdrawing stimulus.
The data is unlikely to prompt any action from the central bank ahead of its April policy review, after a central banker on Thursday played down the possibility of any off-cycle action.
Industrial output grew 16.8 percent in December from a year earlier, up from revised annual rise of 11.8 percent in November and also above analysts forecast for a 12 percent rise, data showed on Friday. It was the highest reading since
April 1999 for which the data immediately available.
"We are going to see some rollback of fiscal stimulus in the Feb. 26 federal budget," said Rahul Bajoria, an economist with Barclays Capital in Singapore.
"The need to support the manufacturing sector through duty cuts is no longer there."
Financial markets are closed on Friday for a holiday.
The central bank has already started to unwind stimulus, surprising markets by raising banks' cash reserve requirements by more than expected at its January policy review. It is widely expected to tighten rates at its April meeting.
Consumer durables goods output continued to surge on the back of fiscal spending, growing an annual 46 percent in December.
Manufacturing production rose 18.5 percent on year, while capital goods output was up 38.8 percent and mining rose 9.5 percent.
Factory output, which grew for the 12th consecutive month, is riding on a revival in consumer demand following aggressive rate cuts by the central bank and stimulus via tax breaks put in place after the global downturn.
Since December 2008, India has announced stimulus packages equivalent to about 12 percent of GDP to boost infrastructure and support economic recovery, while the RBI cut its key lending rate by 425 basis points between October 2008 and April 2009.
Purchasing managers' index showed last week manufacturing activity in January grew at its fastest pace in almost 1- years, boosted by a sharp rise in new export orders, while car sales in January rose an annual 32.3 percent.
The government has been reluctant to commit any rollback in fiscal stimulus but with the economy increasingly looking on a solid footing, analysts expect it to lay out a roadmap for a stimulus withdraw in its Feb. 26 annual budget.
On Wednesday, the finance minister said India's economy would grow around 7.75 percent in the fiscal year ending March.