Factory output slump likely over: Reuters poll

By Rahul Karunakar

BANGALORE (Reuters) - The worst is probably over for flagging Indian factories but production was likely subdued in December as global demand remained weak, a Reuters poll showed.

India's industrial production (IIP), which includes output at factories, mines and utilities, likely rose an annual 1.1 percent in December after shrinking 0.1 percent in November, according to the poll of 24 economists conducted this week.

If realised, that would show factory output grew in just six months of last year but economists said Indian manufacturers were expected to fare better this year.

"The fall in industrial production has bottomed out in the final months of 2012 but will not pick up at a sharp rate, it will only be a very gradual recovery," said Aman Mohunta, an economist at Nomura.

Output in the country's eight key infrastructure industries, which account for almost 40 percent of factory production, expanded just 2.6 percent in December from a year earlier, a tad higher than November's 1.6 percent.

And output in three of those eight key industries - natural gas, coal and fertilisers - contracted, which likely had a bearing on overall industrial production.

Factory output has also been hurt by relatively weak global trade, especially from Europe, India's largest trade partner, with the debt-ravaged euro zone economy expected to contract again this year.

"We are not seeing a broad based improvement in exports for IIP to reflect that," said Upasna Bhardwaj, an economist at ING Vysya Bank.

Exports, which account for one-fifth of India's gross domestic product, fell for eight consecutive months up to November but December trade data showed the pace of contraction was slowing.

Asia's third-largest economy is headed for even worse than anticipated growth this fiscal year ending in March, well below the earlier projections for a decade low pace, according to preliminary data released on Thursday.

So since late last year the government has been introducing a slew of reforms to support the slowing economy, including cutting fuel subsidies, hiking rail passenger fares and opening the retail sector to foreign investors.

Still, investments have shown little sign of increasing. Capital goods production, a measure of investments in factories, shrank 4.7 percent in November, having grown just once in the eight months until then.

In its own bid to revive the flagging economy, the Reserve Bank of India cut the key repo rate for the first time in nine months, by 25 basis points to 7.75 percent in January, but warned there was limited room for further easing.

(Polling by Namrata Anchan; Editing by Kim Coghill)