Expert Views On August IIP

India's industrial output in August rose a lower-than-expected 4.1 percent from a year earlier, government data showed on Wednesday.

The median forecast in a Reuters poll was for an annual rise of 5.0 percent.

Industrial output growth for July was upwardly revised to 3.84 percent, the federal statistics office said in a statement.

Manufacturing output , which constitutes about 76 percent of the industrial production, rose an annual 4.5 percent in August.

During April-August, industrial output expanded 5.6 percent. Industrial output had grown 7.8 percent in the 2010/11 fiscal year that ended in March, slower than 10.5 percent clocked in the previous fiscal year.

Commentary

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE:

"Base effects however mask the slowdown in activity on sequential basis as higher borrowing costs and increase in fuel/raw material prices impinge on activity.

"Month ahead could see modest boost from festive demand, which will however fade into late Q4 and ease well into next year.

"Friday's WPI number will be the main determinant of policy action as the RBI remains tolerant to signs of slowdown in consumption and production indicators. We see a lean towards a rate hike in October, likely the last for this fiscal year."

MARKET REACTION

* The 10-year benchmark bond yield rose 2 basis points to 8.73 percent as traders had factored in a weaker number, which led to some selling post the data release.

* The Sensex reacted little and was up nearly 1 percent.

* The partially convertible rupee was at 49.26 per dollar, steady from before the data.

* The benchmark five-year swap rate and the one-year rate took the data in their stride and were little changed at 7.32 percent and 8.05 percent respectively.

BACKGROUND

- The data, along with September inflation due on Friday, will set the ground for the central bank's rate decision scheduled on Oct. 25.

- A Reuters poll after the Reserve Bank of India (RBI) released its mid quarter review in September showed that 7 out of 12 analysts expect the central bank to raise rates by atleast another 25 basis points in 2011.

- The RBI, which has raised rates 12 times since mid-March 2010, remains bent on fighting inflation despite weakening global conditions as inflation at near double digits remains much above its comfort zone.

- Rising borrowing costs have dented consumer spending and hurt growth. The economy expanded 7.7 percent in April-June, its weakest pace in six quarters.

- Indian manufacturing growth nearly stalled in September, turning in its weakest showing since March 2009 on slowing output and order growth as the rate increases and weakening global conditions took a toll, a survey showed.

- The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 in September, close to the 50 mark dividing growth and contraction.

- The service sector contracted for the first time in more than two years in September as new business all but dried up and expectations weakened amid concern over a flagging world economy, a survey showed.

- Exports rose 44.2 percent in August, slower than the 82 percent surge in July, as economic turbulence in the United States and Europe, India's top sales destinations, began to bite.

- The wholesale price index , India's main inflation gauge, rose 9.78 percent in August, above the 9.22 percent recorded for July.

- India's infrastructure sector output grew 3.5 percent in August from a year earlier, sharply slower than a revised annual growth of 7.5 percent in July.

(Reuters)