Industrial production rises 2.7% in India

By Erika Kinetz  |   2009-7-11  |     NEWSPAPER EDITION

INDIA'S industrial production rose 2.7 percent in May, the government said yesterday, the largest gain since October, fueling hopes that Asia's third-largest economy may be on the road to recovery.

The government also revised industrial output growth for April from 1.4 percent to 1.2 percent.

Despite those moderate gains, the cumulative growth rate for April and May was 1.9 percent, down from 5.3 percent during the corresponding period last year, the Ministry of Statistics said.

Manufacturing gained 2.5 percent in May from a year earlier, capital goods production shrank 3.6 percent, and consumer goods production grew 1.2 percent, thanks to demand for consumer durables, the government said.

Sherman Chan, an economist at Moody's Economy.com in Sydney, said India's industrial performance has been stronger than expected thanks to robust domestic demand and could get a further boost if the government makes good on its pledges to increase infrastructure spending.

Chan cautioned, however, that a "solid recovery" may be a few months away.

"Similar to the case in Japan, producers in India may have run down inventories during the early stage of the global turmoil, meaning that the decline in production was steeper than the fall in orders, and the recent rise in production could be a result of businesses rebuilding inventories amid signs of green shoots in the global environment," she said.

India's Finance Minister Pranab Mukherjee on Monday announced plans to increase infrastructure spending to more than 9 percent of gross domestic product by 2014, part of a package of government spending and tax cuts he unveiled in the new annual budget.