India’s industrial output rose in February, the second consecutive monthly increase, giving rise to hopes that the economy had hit a bottom. The increase was glacial. Output from factories and mines was only 0.6% higher than February of the previous year, yet it managed to beat expectations by over two percentage points — an indication of the dramatic loss of momentum suffered by Asia’s third largest economy.
Industrial output had risen 2.5% in January and the consensus expectation for February was a 1.3% fall. Policymakers would also be cheered by the fact that consumer inflation dropped for the first time in six months — though it remained in double digits, at 10.4% in March against 10.9% in February.
The decline in consumer price inflation will strengthen the case for a rate cut if the more widely followed wholesale price index, which will be released on Monday, also shows a decline in inflation.
Industry body CII has called for a 50 basis point cut each in repo rate and CRR in the monetary review on May 3.
Many economists expressed skepticism at the notion that any sort of recovery was under way.
The better-than-expected numbers were largely because of the smart pickup in production of capital goods, which seemed to suggest a revival of investments, but economists were quick to caution that this component of IIP had been extremely volatile and needed to be watched over a longer period of time.
Production of capital goods rose 9.5%, the highest in a year and the first expansion since October.
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