India’s industrial output in April is forecast to have grown an annual 5.7%, rising from March but still way below early 2007 levels as inflation risks keep monetary policy tight.
The median forecast for growth in a Reuters poll of 10 analysts showed output expansion comfortably above 3% in March but well under February’s unrevised 8.6%.
Factory output growth has slowed from rates above 10% in 2006 and the first half of 2007, although overall economic growth was upwardly revised to 9% for the fiscal year ending in March.
Industrial output grew an annual 11.3% in April 2007.
“The moderation in industrial growth will continue. As of now, I don’t see a big jump and it will continue in the same trend witnessed in the past few months,” said principal economist at ratings agency Crisil Ltd D.K. Joshi.
Analysts said recent moves to stem liquidity have contributed to the moderation, and non-food credit offtake was still sluggish, suggesting a turnaround was unlikely before the second half of the fiscal year.
The ABN Amro Bank purchasing manager’s index (PMI) in April showed manufacturing activity held steady from the previous month but price pressures increased and the pace of new orders slowed.
The central bank raised interest rates five times in 10 months from June 2006.
It also tightened banks’ reserve requirements through last year and again in 2008 to keep a lid on credit growth and inflation.
At its last policy review, the Reserve Bank of India on 29 April kept policy rates unchanged, saying inflation risks persisted, but hiked the cash reserve ratio (CRR), this time by 25 basis points to 8.25%, its highest level in seven years.
The rise took effect from 24 May. The unexpected increase in CRR, the amount of funds banks have to keep on deposit with the central bank, followed a two-stage rise announced earlier in April.
India’s annual inflation is running at its highest in more than three years, and in late May stood at 8.24%.
Economists expect a response from the central bank to calm price pressures, especially with last week’s decision to raise fuel prices that is seen pushing inflation to a 13-year high early this month.
Policymakers expect growth in Asia’s third largest economy to moderate to around 8-8.5% in the current fiscal year.
Industrial production accounts for about one-fifth of India’s gross domestic product, or GDP, and output expanded 8.1% in the fiscal year to end-March 2008.