India February industrial output slows to 4.1%

India's industrial output grew in February by a lower-than-expected 4.1 percent, data showed Thursday, fuelling expectations the central bank may cut interest rates for the first time since 2009.

February's growth in manufacturing, mining and electricity output from a year earlier undershot market predictions of a 6.6 percent rise.

In another blow, January industrial output growth was revised heavily downward to 1.1 percent from an initial 6.8 percent estimate, a correction that the statistics office blamed on a miscalculation in sugar production.

Moody's Analytics economist Glenn Levine called the February numbers "terrible" and said they showed that Asia's third-largest economy "is struggling."

"There was hope among India-watchers, the economy could be doing better than expected or -- better yet -- the worst of the slowdown may have already passed," Levine said.

But this "wishful thinking has been completely obliterated," he added.

India's economy has been staggering under the brunt of 13 interest rate hikes to curb stubborn inflation, marking the most aggressive pace of monetary tightening by any major economy.

Emerging market nations have been cutting rates to bolster expansion and shield their economies from Europe's sovereign debt crisis and the weakened US economy.

But India has kept rates at their highest level since 2008 in a bid to tame stubborn inflation, still running at close to seven percent, but down from last year's near double-digit levels.

Finance Minister Pranab Mukherjee reinforced expectations of a rate cut, saying the data "would have a bearing on monetary policy" and promising the government and central bank "will take required steps to revive the economy."

Economists forecast the central bank would start rolling back rates at its policy meeting next week, predicting a cut of 25 basis points in the benchmark lending rate to 8.25 percent.

The weak output numbers come as the Congress-led government, already battered by a string of graft scandals, has been under heavy financial market pressure to curb public spending and rein in a ballooning deficit.

The government estimates the economy grew 6.9 percent in the year to March 31, 2012 -- the weakest pace since the 2008 global financial crisis -- and it expects growth to be 7.6 percent this fiscal year.

But the Asia Development Bank forecast Wednesday the economy would expand by just seven percent, still strong by Western standards but below the nine to 10 percent level seen as the minimum to haul hundreds of millions from poverty.

Manufacturing output, which comprises 76 percent of the Index of Industrial Production, grew by four percent year-on-year, mining rose by 2.1 percent while electricity rose by eight percent

This data "is doubly disappointing -- a vanishing economic recovery," said Credit Suisse Economist Robert Prior-Wandesforde.

The industrial output figures are often volatile but the size of the January revision was unusual and was expected to reinforce doubts about the reliability of India's financial data.

"One would have hoped or expected this kind of error would have been picked up before the January release, but clearly that was not the case," Prior-Wandesforde said.


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