Indian economy performs better than forecast before elections as production rises, inflation cools

Mar 12 2014, 22:32 IST
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The fall in December's output was revised to 0.17 percent on year from 0.6 percent earlier. Reuters The fall in December's output was revised to 0.17 percent on year from 0.6 percent earlier. Reuters
SummaryIndia's flagging economy delivered rare good news with a slight expansion.

India's flagging economy delivered rare good news on Wednesday with a slight expansion of industrial production and further cooling in consumer prices, offering some respite to the ruling coalition before next month's general election.

Improved consumer demand helped industrial output expand 0.1 percent on year in January, the first growth in four months, data from the federal statistics ministry showed on Wednesday.

Analysts polled by Reuters had forecast a contraction of 0.6 percent in output. The fall in December's output was revised to 0.17 percent on year from 0.6 percent earlier.

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Separately, retail inflation eased for the third straight month to a 25-month low of 8.10 percent in February from 8.79 percent in the previous month on moderating vegetable prices.

"Today's data show India's beleaguered economy moving in the right direction, but still far from healthy," said Miguel Chanco, India Economist at Capital Economics in Singapore.

The data showed production of consumer goods, a proxy for consumer demand, contracted an annual 0.6 percent in January, an improvement from a 4.7 percent drop a month ago.

Asia's third-largest economy has been struggling to recover from a stagflation-type situation where economic growth has been stuck below 5 percent for the past seven quarters while price continue to rise at a fast clip.

Cooling prices will offer some relief to the government headed by the Congress party, which is trailing in opinion polls ahead of the polls that begin on April 7. It is still widely expected to be defeated, in part for its failure to control inflation and revive the economy.

INFLATION RISK

Hail and heavy rains in the past two weeks have damaged crops, which could see food prices spike again. An uncertain outlook for this summer's monsoon rains due to the El Nino weather pattern is also worrying analysts.

"Food ... prices are going to go up again because of unseasonal rains and hail storms in some parts of the country," warned D.H. Pai Panandiker, president of RPG Foundation, a private think tank.

"It appears that food prices will start going up in the next weeks as agricultural output may suffer."

Purchasing managers indexes are already pointing to underlying inflationary risks as rising input costs last month, thanks to higher raw material prices and wage increases, forced firms to pass on them to their clients.

This is likely to keep retail inflation elevated. Retail inflation has been averaging around 10 percent for the past

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