MUMBAI (Reuters) - India's industrial production growth slowed to 0.6 percent in February from a year earlier, government data showed on Friday.
Analysts polled by Reuters had expected output to shrink 0.7 percent annually. Revised data for January showed production at factories, mines and utilities remained unchanged at 2.4 percent.
Separately, annual consumer price inflation slowed to 10.39 percent in March from an annual 10.91 percent in February.
Food prices for consumers rose 12.42 percent on year in March, slower than an annual rise of 13.73 percent in February.
COMMENTARY
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RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE
"The consumer price index (CPI) is more encouraging than the industrial output. The drop in food prices surprised us on the downside and also it bodes well with the expected WPI (wholesale price index) print which is estimated to be low 6.5 percent on Monday.
"Inflation problems seem to resolving on the margin, while the industrial productivity number is still weak. I think we can't conclusively say that growth has bottomed out. We expect RBI to sound dovish and signal more rate cuts taking comfort from easing inflation. We expect RBI to cut the repo rate by another 50 basis points in the next two meetings."
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI, MUMBAI
"The unexpected positive surprise on the IIP is due to capital goods which is known to be notoriously volatile. It does not necessarily give a new trend, but we can say manufacturing sector growth has bottomed out.
"The RBI can take comfort from the fact that food inflation is moving towards single digit. It will give elbow room to the RBI to lower rates on May 3."
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
"The big increase in capital goods output contributed to the positive IIP number, but I wouldn't say the corner has turned as there is no anecdotal evidence of new projects coming up. The CPI looks to be moving in the right direction, food prices seems to have slowed, though the CPI level is still elevated.
"I expect the central bank to cut the repo rate by 25 basis points in May as the wholesale price index is expected to moderate and as long as RBI is comfortable with this trajectory, it is better to cut rate earlier than later to boost growth."
DHARMAKIRTI JOSHI, CHIEF ECONOMIST, CRISIL LTD, IN MUMBAI
"The sluggishness has continued. Going into 2013/14, it should pick up from this level and particularly there are better prospects for consumption-led sectors, rather than investment-led. But there again there may not be buoyancy but relative improvement.
"We are factoring in a 25 basis points rate cut in May even though there is not much room for easing. It is difficult, however, to say at this stage whether the May rate cut would be the last.
"On inflation our sense is that it may come down this year, but not to the level where the RBI is comfortable with it."
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI
"On the IIP, it's more of a play on capital goods and I can't see a significant reason for that to improve. Definitely there seems to be bunching up in production, and this could be a data-related issue, which we have also seen in the past.
"We are perhaps consolidating at a very low level for the IIP, and there is no indication for recovery.
"Case for monetary easing has other considerations like the high current account deficit, and the high and stubborn CPI. At this stage, however, the case for a rate cut is 60:40. Core inflation is going to be on a comfortable trajectory and that should give some headroom for the RBI to cut rates in May and even perhaps inject liquidity through a CRR cut. Or maybe just cut repo rate but there is a case for some degree of monetary easing."
JONATHAN CAVENAGH, FX STRATEGIST, WESTPAC, SINGAPORE
"Detail looks pretty solid as well from a capital goods and manufacturing perspective. CPI data was also released and remains above 10 percent, although it came in weaker than expected (at 10.4 percent versus 10.7 percent expected).
"More focus will be on the wholesale price data, which is out next Monday. We need to see this series easing further to raise hopes of further RBI cuts."
ANJALI VERMA, ECONOMIST AT PHILLIPCAPITAL, MUMBAI
"I don't think the numbers are anything to feel very happy about. IIP is still showing a fairly small amount of growth. The growth is still sluggish and there is no substantial improvement in industrial activity except for the base effect. CPI is only showing a marginal improvement.
"I have lowered my FY14 GDP forecast to 5.5 percent from 6.3 percent. I expect a 25 basis point cut in the repo rate on May 3."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"The data clearly shows that weaknesses continue in industrial production. Food articles inflation as expected is sticky but given the disproportionate increase in risks to growth I think the Reserve Bank of India will continue with its baby step approach and cut rates by 25 bps at its upcoming annual policy on May 3."
BACKGROUND
- India's economic growth will remain subdued at 6 percent in 2013/14 and any recovery will be gradual, a Reuters poll of economists showed. Headline inflation is expected to average around 6.5 percent this year, above the Reserve Bank of India's perceived comfort level of around 5 percent, reducing the chances of aggressive policy action to pull the economy out of its slowest pace of expansion in a decade.
- Prime Minister Manmohan Singh urged business leaders last week to keep faith in his Congress-led government's efforts to improve a dire investment climate, without giving details of fresh steps to bring about a recovery in the sagging economy.
- Growth in India's services sector eased in March to its slowest since October 2011 as order books filled at a slower pace, a business survey showed, compounding problems for the economy after earlier data showed manufacturing activity was also losing momentum.
- India's annual car sales fell for the first time in a decade in the financial year just ended and are expected to post subdued growth this year, calling into question bullish expectations that fuelled billion-dollar bets from global manufacturers.
- Heavy imports of oil and gold, together with muted exports, drove India's current account deficit to a record high in the December quarter, soaring to $32.63 billion or 6.7 percent of GDP.
(Reporting by Treasury, Companies, Markets teams; Editing by Ranjit Gangadharan)
