India Factory Output Jumps to 9-Month High

The government had twin cause for cheer with industrial growth picking up pace to a nine-month high in August and consumer inflation remaining steady in September, exceeding expectations and raising hope the economy is set for a revival after slumping to a three-year low in the June quarter.

The index of industrial production rose 4.3% in August, reversing a contraction in June and faster than a 0.9% rise in July, according to data released by the central statistics office on Thursday. Inflation based on the consumer price index was at 3.28% in September, unchanged from August, the statistics office said, PTI reported.

The expectation had been for inflation of 3.5% and industrial growth of around 2.5%.

The numbers will buoy the government, which has been at the receiving end of a spate of criticism for its economic management after growth fell to 5.7% in the April-June period, triggering a raft of downgrades in FY18 growth estimates by multilateral institutions, the Reserve Bank of India and brokerages.

The government had been considering a stimulus program to help revive growth, something the economic advisory council to the prime minister had weighed against on Wednesday. Experts welcomed the signs of recovery but want to watch the data for a few months before calling a turnaround.

“These are early signs that will dispel the gloom that had set in. This seems to signal a turnaround in economic activity,” said Saugata Bhattacharya, chief economist at Axis Bank, while pointing out that primary goods and electricity had contributed in a big way to the recovery.

HDFC Bank senior economist Tushar Arora said, “Manufacturing growth is better than expected but it does not mean that we will change our forecast because it was prompted by a favorable base in mining and electricity and GST restocking.”

Advance indicators such as car sales and the purchasing managers’ indices for September have also been buoyant, suggesting some strength ahead of the festival season.

“Three successive impressive growth rates would indicate a real recovery. Or else, it would be more a case of the restocking impact of the Goods and Services Tax,” said Madan Sabnavis, chief economist at CARE Ratings.

The government has maintained that the economy bottomed out in the April-June quarter and that it will revive, a view endorsed by RBI that last week pared gross value added growth to 6.7% from 7.3% estimated earlier.