IIP grows 2.5 per cent in March, in line with expectations

The Index of Industrial Production (IIP), a measure of India's factory output, grew 2.5 per cent in March, the third straight month of increase after shrinking in eight months last year, indicating a moderate recovery in Indian factories.

The numbers for March are in line with the 2.4 per cent growth estimate put out by an NDTV Profit poll.

The IIP had grown by a meager 0.6 per cent in February on the back of a 2.2 per cent rise in manufacturing, which constitutes about 76 per cent of industrial production.

"This is a significant improvement on year-on-year. We are on the upward sphere of economic growth. The downward phase has bottomed out," said Dr. C. Rangarajan, chairman, Economic Advisory Council to the Prime Minister.

While the manufacturing and electricity sectors grew by 3.2 per cent and 3.5 per cent, respectively, output in the mining sector contracted to -2.9 per cent. Capital goods output grew by 6.9 per cent.

"We should get a 5 per cent growth in manufacturing in the coming fiscal. That should give us the overall growth rate of 6.4 per cent for the year," Dr. Rangarajan added.

In terms of industries, 10 of the 22 industry groups showed positive growth.

March IIP was partly boosted by an improvement in exports and investments. India's exports rose for the third straight month in March, offering some relief to the high current account deficit, which hit an all-time high in the quarter to December.

"There is a positive vibe by international investors to look at India that long term story is still intact. Some deals have started to slow," said Sunil Kanoria, vice-president, Assocham.

Although the HSBC manufacturing survey for March and April showed weak factory activity, the April PMI showed a jump in export orders, underlining the improvement in foreign demand for Indian goods.

That augurs well for Asia's third-largest economy, which is struggling to recover after growing in 2012-13 at its slowest rate in a decade.

Car sales -- a proxy for domestic consumer demand -- fell for the fifth straight month in March. The overall fall in the 2012-13 fiscal year ending in March was the first in a decade.

To help pull the economy out of the slump, the Reserve Bank of India last week cut its benchmark policy rate by 25 basis points for the third time this year, to 7.25 per cent, but was cautious about further policy easing.

With inputs from Reuters