Industrial output in March rebounds to 7.3%

Industrial output rebounded in March, rising 7.3% from the previous month’s 3.7% led by a recovery in manufacturing and capital goods but economists say the sector faces headwinds in the coming months due to the impact of rising interest rates. Data released by the statistic office showed overall industrial output in 2010-11 stood at 7.8% compared to 10.5% in the previous year. The data surprised financial markets as expectations for industrial output in March were in the range of 3-3.5% given the sluggishness in the sector that has persisted for the past few months. The manufacturing sector, which accounts for nearly 80% of industrial output, rose 7.9% in March, against February’s 3.6% growth. The electricity sector rose 7.2% in March compared to 8.3% in the same year ago month. The only laggard was the mining sector which grew 0.2% compared to 12.3% in the same year ago period. The rebound in March was largely led by a revival in capital goods. The sector, which is a key barometer of industrial activity, rose 12.9% in March after declining for the past three months. Economists expect the industrial sector to face pressure in the months ahead as the impact of the Reserve Bank of India’s interest rate tightening kicks in. But some economists say they expect a recovery in the second half of the 2011-12 as the central bank’s rate tightening moderates. The RBI has raised interest rates nine times since March 2010 to tame stubbornly high inflation and has said it was ready to sacrifice some growth to tackle price pressure. Finance minister Pranab Mukherjee said weekly and monthly cycles of bad and good news must be treated without over reaction.