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'Sightly Below Expectations' and 'Disappointing'

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India's industrial production barely grew in July, with the anaemic pace of expansion suggesting broader economic activity remains weak and offering little relief to embattled Prime Minister Manmohan Singh's as state elections loom. The industrial production data, released by the Central Statistics Office (CSO) on Wednesday, showed output at factories, mines and utilities grew an annual 0.1 per cent, helped by a recovery in consumer non-durables. Wednesday's data also provided an insight into the economy's performance in the quarter to end-September. The economy has grown 5.5 per cent or less in the last two quarters, a far cry from the 7-8 per cent growth seen in the preceding period. But inflationary worries mean the central bank has resisted lowering interest rates despite the sharp slowdown. The Reserve Bank of India is widely expected to leave its key lending rates steady when it reviews its monetary policy on Monday, in sharp contrast to many other G20 central banks that have been easing conditions to support growth.
 
While Dariusz Kowalczyk, Senior Strategist, Credit Agricole CIB, Hong Kong, termed the output "disappointing" , Radhika Rao, Economist Forecast PTE, says, "The headline is slightly below expectations." Here's what the senior economists and strategists think of the IIP data:
 
Dariusz Kowalczyk, Senior Strategist, Credit Agricole CIB, Hong Kong
"The data is very disappointing as it bodes ill for GDP growth in the current quarter. Worse still, it was the second straight month of manufacturing contraction (down 0.2 per cent YoY). "The data highlights structural weaknesses of the economy, with poor domestic demand amid political gridlock and contracting exports. It may lead to renewed expectations of a rate cut this month, although we believe that odds still favour the RBI to stay put before cutting in Q4. "The data should have a modest negative impact on the INR, equities and lead to some downside for the INR OIS curve."
 
Indranil Pan, Chief Economist, Kotak Mahindra Bank, Mumbai
"Inflation risks are elevated and is likely to lead to the Reserve Bank of India holding back any easing in its key policy rate. We believe Wednesday's IIP data is not going to have any influence on the RBI's stance. Moreover, if the US Federal Reserve announces quantitative easing, that will make the RBI more nervous in terms of cutting rates."
 
Radhika Rao, Economist Forecast PTE, Singapore
"The headline is slightly below expectations, with signs of broad-based slowdown in the sub-components. Apart from the inherent volatility in the series, the data validates that the highly-weighted manufacturing sector remains under weather and a rebound is unlikely in the absence of efforts to address structural deficiencies. Combination of weak external sector, sluggish investment sentiments and moderating consumption demand will keep overall production activity subdued in the coming months. RBI will be more interested in the inflation outcome due on Friday."
 
D.K. Joshi, Principal Economist, Crisil, Mumbai
"All the indications are of a slowdown if you look at the July number for exports, core index growth, the GDP data, which showed private consumption slowing and investment stagnant. The core sector was a pointer, reflecting slowdown in mining and electricity. But, from the fiscal side, due to lack of concrete steps and with inflation concerns dominant at least for the near term, the Reserve Bank of India is unlikely to move on rates."
 
Rupa Rege Nitsure, Chief Economist, Bank Of Baroda, Mumbai
"I don't think the Reserve Bank of India would change its stance going by Wednesday's factory output reading. India's problems are primarily structural and require structural solutions."
 
Rahul Bajoria, Regional Economist, Barclays Capital Singapore 
"Today's data is slightly better than last month, but the scenario is still pretty weak and the numbers are not awe inspiring. The mining sector continues to remain a drag, and will have an impact on electricity generation. Manufacturing is also under pressure, and even for next month's data we see weak numbers on the back of a drop in auto sales and the recent strike at Maruti. So the growth outlook is weak. The Reserve Bank of India will consider the inflation numbers seriously. If inflation comes in low, and the government takes policy measures like increasing fuel prices, it could be a signal for monetary easing. Global factors like the U.S. Federal Reserve's decisions will also influence the RBI's stance."
 
A. Prasanna, Economist, ICICI Securities Primary Dealership Ltd, Mumbai
"Cannot dismiss the trend in index of industrial production (IIP) data, there is no doubt about a slowdown, even if you look at high frequency numbers like auto sales. Looks like the next month's IIP number may be quiet bad. The key criteria for the Reserve Bank of India is to bring down inflation on a sustainable basis, and for the government to bring the fiscal deficit under control. Neither of that has happened, and may not happen at least in the near term. So, in September, we are not seeing any change in rates but I won't rule out for October, purely because the government still has time. If the government shows commitment towards fiscal consolidation, even though inflation is unlikely to come down immediately, we may have to re-assess. But, as of now, there's no compelling reason for the RBI to cut rates."
 
Shakti Satapathy, Fixed Income Strategist, AK Capital, Mumbai 
"The dismal growth is no more a trigger and the same trend is likely to continue in Q2 FY13. The sequential fall in the intermediate and basic goods clearly indicates production slowdown. With consistent global worries and higher domestic inflation, a fast track action from the government is indispensable to regain the investment confidence."
 
Nitesh Ranjan, Economist, Union Bank of India, Mumbai 
"Industrial output growth is nearly flat which was consensus as well as our expectation. If we look at various growth indicators in recent months and kind of outlook on these, there appears to be larger negative output gap. That means scope for rate cut to stimulate the economy. But for upcoming policy review our call is status quo on policy rate as well as CRR. More interesting to look for in review will be RBI's guidance and whether it perceives further downside risks to growth than earlier anticipated."
 
Markets
Indian markets showed little reaction after the data. The 10-year benchmark bond yield fell around 1 basis point to 8.18 per cent as of 0533 GMT from levels before the data, trading flat from its previous close. The rupee held on to its earlier gains after the output data, trading at 55.24/25 versus its 55.44/45 close on Tuesday, while the Sensex also retained its gains, trading up 0.5 per cent.
 
(Reuters)