Sept factory output grew at best pace since March: poll

BANGALORE (Reuters) - Indian factories increased production in September at the fastest pace since March ahead of an expected surge in demand during the country's festive season, according to a Reuters poll.

Coal, electricity and cement production in particular, along with an uptick in demand for India's products abroad, are also expected to have contributed to overall factory output growth in September.

Production at factories, mines and utilities in India likely rose 3.5 percent annually in September, much faster than August's 0.6 percent growth, a poll of 24 economists showed.

Good factory growth in September would be welcome news for the struggling Indian economy, but some economists say momentum is unlikely to be sustained.

"The expectations are that overall, in order to meet the festive related demand, production would have been ramped up," said Upasna Bhardwaj, an economist at ING Vysya Bank.

India's festive season usually begins in October and is characterised by increased spending on products ranging from sugar to gold to bigger items such as cars and electronic appliances.

Production in the core sectors - also known as infrastructure output, which includes coal, electricity, cement, crude oil and steel factories - clocked a much higher growth rate in September.

Output in those industries, which account for well more than one-third of overall factory production, rose 8.0 percent annually that month versus 3.7 percent in August, data released last week showed.

Stronger demand from India's export destinations also led to an increase in production, with exports growing 11.15 percent annually during September.

Rising loan rates are one reason economists doubt September's numbers can be repeated.

"The banking sector is slowly increasing interest rates. The costs of funding are likely to put some amount of hit on the production side," said Golaka Nath, senior vice president of economic research at CCIL.

The Reserve Bank of India raised its key interest rate for the second time in as many months in October to combat rising inflation.

Bhardwaj of ING Vysya also warned that industrial production might not grow at as quick a pace in the months ahead.

"On an average, 2-2.5 percent growth can be expected in the second half of this fiscal year," she said.

(Reporting by Deepti Govind; Polling by Sarbani Haldar; Editing by Richard Borsuk)