Analysts polled by Reuters had expected a rise of 1.1 per cent in August output. Revised government figures released on Friday showed July output fell by 0.2 per cent.
Manufacturing, which constitutes about 76 per cent of industrial production, rose an annual 2.9 per cent from a year earlier, the federal statistics office said.
In the April-August period, industrial production expanded an annual 0.4 per cent.
Here’s what experts have to say:
Rupa Rege Nitsure, chief economist, Bank of Baroda:
Sequentially it still shows a decline of 1 percent on July but year-on-year the number looks healthy because of the base effect but the number is still very bad and shows continued weakness in the industrial sector and is in line with the signals given by other indicators like core industrial output, exports, PMI and passenger car sales, all of which showed a sharp deceleration in August.
With inflation hovering around 7.7 percent and industrial sector showing continued weakness, we are in a typical stagflationary situation. The RBI will go ahead with its tried and tested method of reducing CRR (cash reserve ratio) as that also helps banks lower their cost of funds and increase lending. I do not expect the RBI to touch rates on October 30 and deliver just a 25 basis point CRR cut.
Shubhada Rao, Chief Economist, Yes Bank:
I would think that industrial activity is now bottoming out. Support coming from consumption would be much stronger. Going into 4th quarter, we could see support from investment. Capital goods – after months languishing in the negative territory, clearly shows that month on month there is improvement.
Overall, in tone for economic activity, this comes as a positive number. Consumption has shown a positive turnaround also. We need to see how it turns around in the next few months with festive season coming around. The latest reforms will help in terms of activity in the last quarter.
Clearly, there are some one off items that is pushing consumer non-durables up. But what needs to be seen is an overall trend. There could be a sustained pickup, albeit small.
In my opinion, I think RBI will refrain from cutting repo rate right in October. Headline inflation might come around 8 and quarter to 8 per cent in November. So RBI might not cut rates.
Gaurav Kapur, Senior Economist at Royal Bank of Scotland:
The fact that it has come around 2.7 per cent seems that overall economic activity, especially manufacturing has bottomed out. In fact for capital goods, the base was bad. So this means there is clear improvement. Coal production showed a fairly good bounce, which is showing in mining sector numbers. This is largely on account of favourable base effect. But, the bottoming of economic activity has already happened. It seems like things are not deteriorating any further. You can see that in PMI numbers too. Going by what the numbers have been in the past, it seems like a good number.
Public sector investments are now being pushed through. Private sector investments are still on the sideline. They need to see more improvement.
Capital goods is also seeing a pickup, all of which points out that investments are starting to move. Perhaps work is starting. All of this is starting to show signs.
Consumer durable is supported by low base effect. In the last couple of months, we have actually seen non-durables slowing. That was a worry. We need to see if there is any one off. I would discount these numbers as there was a low base.
New few months, we can expect numbers between 1.5 and 3 per cent. Consumption will pick up with the festive season. But IIP numbers see a sharp swing in Diwali. Not expecting a significant jump.
On WPI – we are expecting the number to be around 7-7.3 per cent. IIP numbers point toward some amount of stabilization. There is case for monetary easing since inflation is lower. But that said, we must see what RBI does. Also, government has taken some steps for revival in investment sentiment. So RBI has perhaps some room to take monetary action. In my view, CRR is not the way out. Repo rate needs to be cut.
C Rangarajan, Chairman, PMEAC:
Going ahead, I believe the growth rate will further increase. We might see a range of 3-4% in the later part of the year.
Negative growth rate for cap goods has come down significantly. Growth is better than last year. Power sector too has seen a pickup. Should have good effect on overall numbers. But what is imp is pickup in investments. We should see a pickup in mining activity too in the next 6 months.
Coal sector has turned out. IT was not doing well last year. An improvement in coal production should also lead to an improvement in generation of power. Should help in performance of electricity sector.
Inflation has a tendency to decline. So we need to wait and watch. RBI’s policy will be largely influenced by the trend in inflation.
Sushil Maroo, Director & Group CFO of JSPL:
People have started thinking about investment, mainly because of all the reforms that government has started talking about. Has energized entrepreneurs, as they think that things have started picking up.
Robert Prior-Wandesforde, Director, Asian Economics Research, Credit Suisse:
Indeed yes, these are surprising numbers. These figures are offset by more powerful developments. It is a pretty good number. This is the strongest evidence that perhaps growth is finally picking up in India.
But, we should perhaps be little careful here and not get carried away. My sense is that we are off through the worse. Certainly not heading into clichéd recovery.
Jyotinder Kaur, Economist, HDFC Bank:
We would be cautious in saying this marks a revival in growth. Unless the impediments to investment are removed, there is unlikely to be a significant turnaround in the near future. From the central bank's policy point of view, the headline inflation number remains crucial, and the factory output print coming a little higher than expected is not going to make a big difference.
Radhika Rao, Economist, Forecast Pte.:
Firmer headline print should not be misinterpreted as a recovery, as activity stabilises at weaker levels. Higher fuel prices, sticky inflation and high borrowing costs will continue to impinge on demand, while sticky input prices pressure manufacturers' margins. Overall, given weak capex spending and troubled external sector along with moderation in consumption demand, manufacturing trends are likely to remain depressed for the time being.
Anubhuti Sahay, Economist, Standard Chartered Bank:
This number is better than expected no doubt, but it does not change the view on India's growth story, and neither does it move the needle on the central bank's monetary policy stance. It shows that the industrial sector still remains weak. The headline inflation data and reform steps from the government will remain key to the monetary policy.
Sonal Varma, India Economist, Nomura:
It seems the IIP numbers have bottomed out. I am looking at 2.2 percent industrial growth for the full fiscal year. Consumer durables are doing well. However, it has to been seen whether it can be sustained.
As of now, we are not expecting any rate cuts in October.
Shakti Satapathy, Fixed Income Strategist, AK Capital:
Though much of the upside was largely pushed by the favourable base effect and sharp increase in capital goods, the stability and recovery in intermediate goods gives some comfort, thus indicating an improvement in the production activities.
We expect the central bank to consider a rate cut in the forthcoming policy meet and would be more keen on taking a look at the forthcoming fiscal announcements in the interim.
A. Prasanna, Economist at ICICI Securities Primary Dealership ltd:
The supply side issues are getting resolved, and we expect the core sector data to pick up in the coming months. On the consumption side, we see growth, also as financing conditions are easing.
We are not saying there is going to be a strong recovery but compared to the previous months, the growth is going to improve. The average industrial growth for the year is expected to be slightly lower than 3 percent.
The only comfort the Reserve Bank of India can draw from this is that things are not worsening further. However, inflation would still matter, and we expect the central bank to be on hold on October 30.
Sujan Hajra, chief economist, Anand Rathi Securities:
Today's factory output data is much better than expectations, but it is still not a very healthy number. It really does not change the big picture as far as the monetary policy is concerned. We still expect substantive liquidity easing and a 25 basis point cut in the cash reserve ratio on October 30.
For the full year, we expect IIP at 4.6 percent.
Upasna Bhradwaj, economist, Ing Vysya Bank:
While IIP figures have come better than expected, we expect RBI to consider the recent spate of remedial measures undertaken by the government and be more watchful about the upcoming inflation figure before taking a policy decision.
G. Chokkalingam, executive director and chief investment officer, Centrum Wealth Management:
IIP alongside other indicators like oil imports support argument of a recovery in industry sector. The 2.7 per cent growth is still however lower by historical standards. Interest rate cut would be the most important thing to watch next.
With inputs from Thomson Reuters