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Industrial Growth Picks Up, Inflation Under Control

Production from mines, utilities and factories rebounded much more quickly than expected in November, posting annual growth of 3.8 percent year-on-year, the fastest since June, government data showed on Monday.
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Industrial Growth Picks Up, Inflation Under Control

India's economic outlook got a boost on Monday after data showed industrial output made an impressive recovery and retail prices rose at a slower-than-expected pace, lending credence to Prime Minister Narendra Modi's sales pitch to global investors.

Production from mines, utilities and factories rebounded much more quickly than expected in November, posting annual growth of 3.8 percent year-on-year, the fastest since June, government data showed on Monday.

Retail inflation, meanwhile, rose to 5 percent in December -- below the 5.4 percent annual rise predicted by analysts in a Reuters poll. Consumer prices were up 4.4 percent on year in November, their slowest pace since data was first compiled in this way in January 2012.



Mr Modi, hosting captains of industry in his home state Gujarat, said on Sunday that India's economic outlook was robust. India was the only large economy expected to grow more quickly this year than last, he said.

Monday's data will also bolster hopes of an interest rate cut by the Reserve Bank of India (RBI) when it reviews its monetary policy next month.

"Keeping aside the base effect impact, this inflation data has been positive," said Shubhada Rao, chief economist, at YES Bank in Mumbai. "I would think that the stage is quite set for a Feb. 3, 25 basis points rate cut."

RBI has kept interest rates unchanged at eight percent over the past year, ignoring calls from the government and industry to ease policy to stimulate investment.

Stagnant capital spending has been a prime cause of India's worst economic performance in a quarter century, with two successive years of sub-five percent growth before a weak recovery began in the year that ends in March.

To speed recovery, Mr Modi has passed a raft of reforms, mostly by executive orders. But global headwinds, lukewarm domestic demand and unused industrial capacity mean capital investment has not picked up and the economy remains way below potential.

The government and industry have been encouraging a steadfast RBI Governor Raghuram Rajan to ease monetary policy to boost consumption in India's domestic demand-driven economy and help kick-start investments.

Concerned over slow economic growth, some government aides are also pushing to loosen fiscal deficit targets in the federal budget next month to fund infrastructure projects that could lift growth.

Analysts, however, warn against loosening targets for the fiscal deficit as that could delay the rate cuts as Mr Rajan has set fiscal consolidation as a pre-condition for lowering rates.

"The real action could be seen only after the budget," said Devendra Kumar Pant, chief economist & senior director at India Ratings & Research.

Copyright: Thomson Reuters 2015



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