Factory output, as measured by the Index of Industrial Production (IIP), grew by 6.4 per cent in November, 2010, as per data released by the government here today.

Meanwhile, the IIP figure for October, 2011, has been revised. The latest data indicates a 4.74 per cent contraction in industrial output during the month, as against the provisional estimate of a 5.1 per cent decline in production.

Output of the manufacturing sector, which constitutes over 75 per cent of the index, went up by 6.6 per cent in November, compared to a growth of 6.5 per cent in the same month of 2010.

Power generation grew by robust 14.6 per cent in November, 2011, compared to 4.6 per cent in the same month of 2010.

Production of consumer goods also witnessed a 13.1 per cent upswing during the month under review, as against growth of a mere 0.7 per cent in the corresponding month of 2010.

Furthermore, consumer durables production increased by 11.2 per cent, compared to a growth of 7.2 per cent in November, 2010.

During the month under review, output of consumer non-durables also went up by 14.8 per cent. The segment had declined by 4.4 per cent in November, 2010.

However, mining output declined by 4.4 per cent in November this fiscal, as against a growth of 6.9 per cent in the corresponding month a year ago.

Production of capital goods also fell by 4.6 per cent in the month under review. The segment had grown by 25.7 per cent in the corresponding month of 2010.

Indian factory output grows more than expected

Meanwhile, basic goods production witnessed 6.3 per cent growth in November, 2011, as against growth of 5.7 per cent in

the same month of 2010.

Production of intermediate goods also rose marginally by 0.2 per cent during the month, compared to growth of 4.3 per cent in the year-ago period.

The resurgent industrial production numbers are likely to boost the sentiment in the economy and may also help the RBI go for rate cuts in the near future.

India's economy grew by 6.9 per cent in July-September, 2011, the slowest rate of expansion in nine quarters.

India Inc had attributed the slowdown to rising interest rates, which have led to an increase in the cost of borrowing, thus hindering fresh investment.

The Reserve Bank has hiked interest rates 13 times since March, 2010, to tame inflation. Headline inflation has been above the 9 per cent-mark since December last year.

Reuters text - India's industrial output recovered in November, providing a glimmer of optimism for a battered economy and giving the central bank room to hold off on easing monetary policy after two years of tightening.

Production at factories, mines and utilities grew 5.9 percent from a year earlier in November, its fastest since June, recovering from a contraction in the previous month and well above the forecast of 2.2 percent growth in a Reuters poll.

Industrial output data is notoriously volatile, and the November figure was above even the highest estimate among 32 economists in the poll, which ranged from contraction of 4 percent to expansion of 5.6 percent.

I think the RBI will take comfort from the industrial output number as it shows growth is shaky but not negative. It also allows the central bank to continue to focus on inflation, said Madan Sabnavis, chief economist with CARE Ratings, who does not expect any monetary easing before the end of March.

India's economy has been hurt by a combination of feeble growth in the United States and Europe, a prolonged spell of monetary tightening to quell high inflation, and decision-making paralysis in the federal government.

The central bank has said growth concerns are back on its radar, but that the actual easing of policy would depend on the inflation momentum.

Bond yields and swap rates rose following the release of the data, which dissapointed hopes that the Reserve Bank of India would begin monetary easing sooner rather than later, before quickly retreating to earlier levels.

The October figure was revised to annual contraction of 4.7 percent from the previously reported 5.1 percent.

Headline annual inflation is expected to have slowed to 7.5 percent in December, after running above 9 percent for a year, as food prices eased. The data will be released on Jan. 16.

Manufacturing output, which contributes about 76 percent to industrial production, grew 6.6 percent from a year earlier.

RBI'S NEXT MOVE

Prime Minister Manmohan Singh said on Sunday that the economy would likely grow about 7 percent in the fiscal year ending March 31, below a revised government forecast of about 7.5 percent and sharply lower than 8.5 percent growth last fiscal year.

The RBI, which has raised interest rates by a total of 375 basis points since March 2010 to stem inflation, will next review policy on Jan. 24.

Some analysts expect the RBI to cut the cash reserve ratio, or the proportion of deposits that banks must keep as cash with it, to ease a cash crunch in the banking system.

The RBI has been buying government securities from the open market to inject liquidity and has bought 497 billion rupees ($9.58 billion) of the government debt since late November.

The central bank is also likely to prefer bond buybacks to a cut in the cash reserve ratio since a CRR cut will look contradictory to current monetary stance, CARE's Sabnavis said.

While private economists predict more pain for the economy in coming months, officials in New Delhi are betting on a modest rebound beginning in the current quarter, on hopes for an improvement in the external environment, slowing inflation and lower interest rates at home.

Early signs of that recovery came as manufacturing surged to a six-month high in December while services grew at their fastest pace in five months.

Car sales, after falling for four months, rose for a second month in December, climbing 8.5 percent from the same month a year earlier.

Collections of excise duty, a tax levied at the factory gate, rose an annual nearly 10 percent in December indicating a possible rebound in manufacturing activity in Asia's third largest economy. Excise collections had recorded an annual decline in November.

($1=51.9 rupees)

COMMENTARY:

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

For the year, average IIP is likely to be around 3.5 percent. And 3.5 percent is not good enough, and we expect RBI to begin easing monetary policy through a cut in CRR (cash reserve ratio) in January followed by a rate cut in March.

N.BHANUMURTHY, SENIOR ECONOMIST, NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY, NEW DELHI

For any kind of RBI action, the December inflation numbers will be crucial. I would not expect a repo cut before March but as far as the CRR cut, the RBI will be watching the money markets and it seems from what they have been saying that their assessment could be that the liquidity shortage in the markets is not very acute or structural, so the CRR cut may also have to wait till March.

SAUGATA BHATTACHARYA, ECONOMIST, AXIS BANK, MUMBAI

The RBI is likely to continue with their pause stance. The concerns that they had on growth, I think that abates a little bit, allowing then to continue to focus on fighting inflation.

Our sense is that even the WPI number is likely to be a little higher than our expectation. All of us are expecting about 7.4 percent. Given this, the chances of not doing a CRR (cash reserve ratio) cut or a repo rate cut are much higher now.

MADAN SABNAVIS, CHIEF ECONOMIST, CARE RATINGS, MUMBAI

I think the RBI will take comfort from the industrial output number as it shows growth is shaky but not negative. It also allows the central bank to continue to focus on inflation.

In addition, the rupee continues to be volatile, which could have an impact on the imported inflation front. Therefore I do not expect any monetary easing from the RBI till end of the current fiscal year.

The central bank is also likely to prefer bond buybacks to a cut in the cash reserve ratio since a CRR cut will look contradictory to current monetary stance.

VIVEK RAJPAL, INDIA STRATEGIST, NOMURA, MUMBAI

With core (manufactured excluding food) inflation likely to stay uncomfortably high and industrial growth showing some strength, it is difficult to believe that the Reserve Bank of India will cut policy rates or the cash reserve ratio at the Jan. 24 review. But that said, continuation of more open market operations for bond repurchases is expected.

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

The RBI is unlikely to read too much into the data. They will stick by their guidance that rates have peaked and the next step will be a cut. No hasty shift in policy bias is likely in this regard, with first of the cuts expected in the second quarter of 2012. No CRR cut is likely either in January.

Seasonal demand and improvement in lead indicators had pointed towards a firmer production number, and that has materialised, though we see this recovery to be driven by transient forces. Moderation is in store in the coming months as lagged impact of the policy tightening comes into play.

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

There appears to be a huge upside, but the manufacturing number is surprising because the November PMI showed a fall, yet the manufacturing is up 6.6 percent compared to a negative in the previous month. To a certain extent, it appears there is a normalising effect in manufacturing.

Looking at the whole data, any calls of rate cut by the RBI immediately should be put off. We expect the RBI to cut rates in April by 25 basis points.

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

IIP growth has pleasantly surprised, but there are concern over its sustainability given the overall slowdown in capital investment sentiment.

The RBI's stance will be more influenced by the core inflation number for December rather than today's IIP data.

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI

The worry and alarm after October should tone down. There are data issues in IIP, and that is leading to volatility, but the genuine problems in supply sector are getting resolved, particularly in coal and auto.

For October, the working days were less so that exaggerated the fall. I think the November number shows that going forward we will see improved data. There is a slowdown but there is no need for undue worry.

I still think a 50-basis-point cut in banks' cash reserve ratio is likely in RBI's Jan. 24 policy review.

MARKET REACTION:

* The main stock index briefly turned positive after the data from down 0.4 percent beforehand.

* The benchmark 10-year 8.79 percent, 2021 bond yield rose 3 basis points but later trimmed the rise to 2 basis points at 8.25 percent as the market had already begun pricing in no change in interest rates.

* The benchmark five-year swap rate and the one year swap rates were up 6 basis points and 3 basis points.

* The partially convertible rupee was unmoved at 50.79/80 per dollar.

BACKGROUND:

- Infrastructure sector output, which contributes nearly 38 percent to industrial production, grew 6.8 percent in November from a year earlier.

- After falling for four months, car sales rose for a second month in December, climbing 8.5 percent from the same month a year earlier.

- Manufacturing activity surged to a six-month high in December thanks to a spike in factory output and new orders from domestic and international firms, a survey of purchasing managers showed last week.

- Inflation eased to 9.11 percent in November but has stayed above 9 percent for a year.

- The Reserve Bank of India chief said in a BBC interview this month it is likely to begin easing monetary policy to address concerns about economic growth though it is not known when it will take place and in what shape it will roll out.