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India's industrial production may rise to 10%

April 28, 2009 11:38 IST
After clocking low monthly growth, India's industrial production is likely to go back to double digit growth in March on the back of fiscal and monetary measures taken in the last few months, a research firm said.

"The March IP (Industrial Production) data will probably post a 10 per cent month-on-month gain," Macquarie Research said in a note.

"Some industries (motor vehicles, cement and steel) are already showing signs of increased activity, though India's structurally broad industrial base suggests that IP will need a bit more time for the year-on-year growth rates to be firmly in the black, and rising," it added.

India's factory output or IIP (Index of Industrial Production) fell by 1.2 per cent in February, compared to 9.5 per cent growth a year ago.

The decline in India's IP has been significantly less than that in other Asian economies, Macquarie said, adding that the smaller contraction in IP is because India is not heavily dependent on electronic or automotive shipments.

"The motor vehicles sector is a key sector that is benefitting from a combination of increased availability of financing, cheaper cost of credit as the central bank eased policy aggressively, and improved demand following fiscal measures, especially those that enhance purchasing power," Macquarie said.

While the Reserve Bank of India (RBI) has slashed key lending rates by 425 basis points since October last year, the government of India has infused more liquidity into the system by way of three stimulus packages.

"Banks have more room to cut their lending rates more aggressively, which in turn should boost economic activity," Macquarie said. It said that the "largely domestically driven Indian economy will begin to recover palpably from mid-year onwards".

"We forecast a full-year GDP growth of 5.5 per cent for fiscal March 2010 following an estimated 6.5 per cent in the last fiscal year," Macquarie said.

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