New Delhi: India's industrial output rose by a much faster-than-expected 7.8 per cent in June from a year earlier, data showed on Wednesday, driven by higher demand for consumer goods and increased mining activity.
The 30-share BSE index trimmed losses of more than 2 per cent immediately after the data but fell again while benchmark bond yields rose 3 basis points and the rupee gained slightly.
Industrial output rose for the third straight month and clocked its highest rate of expansion since February 2008. June output was far better than expectations for a 3.3 per cent rise, although economists warned that the rapid pace of industrial growth might not be sustainable despite other recent positive signals.
"It might be because some sectors such as coal may have benefited due to the poor monsoons so to that extent it would be a one-off case and I would advise some caution in reading too much into the headline numbers," said Economist at ICICI Securities Primary Dealership in Mumbai, A Prasanna.
May's annual growth rate was revised down to 2.2 per cent from 2.7 per cent previously. "At this stage it is difficult to say whether or not this is a one-off number," said Chief Economist at Bank of Baroda, Rupa Rege Nitsure.
"Though the deficient monsoon has created an uncertainty about the overall growth outlook, the industrial buoyancy at this pace is definitely a strong positive signal," she said.
Output had fallen in December, February and March as Asia's third-largest economy was hit hard by a sudden liquidity crunch and the global downturn. Data published earlier, including that of automobile production, had already indicated industrial output would expand in June, even though exports faltered.
The infrastructure sector grew 6.5 per cent from a year earlier, higher than an unrevised 2.8 per cent in May. Exports fell an annual 27.7 per cent in June to $12.8 billion, the ninth straight monthly fall.
There are signs the expansion in activity continued in July, with car sales rising by a blistering 31 per cent. Society of Indian Automobile Manufacturers showed companies sold 115,067 cars during July, compared with 87,901 cars a year earlier.
India's manufacturing activity held steady in July, expanding for the fourth consecutive month, a survey by Markit Economics showed. But erratic monsoon rains could cloud demand in the economy.
With just over 40 per cent of India's agricultural land irrigated, farm output is heavily reliant on rains but below normal monsoon could potentially hurt rural demand, which accounts for more than half of India's domestic consumption.
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