India Industrial Production Surges 10.4 Percent

MUMBAI, India (AP) -- India's industrial output jumped 10.4 percent in August from a year earlier, its biggest gain since October 2007, boosting optimism that Asia's third-biggest economy is rebounding.

The figures released Monday showed manufacturing output alone rose 10.2 percent, led by increasing production of consumer durables -- which surged 22.3 percent -- in advance of India's gift-buying holiday season.

"This growth has surpassed the industry's expectations," said Soumendra Dash, chief economist at CARE Ltd., a research and ratings agency based in Mumbai. "We get a strong indication that India's economy is recovering very fast."

On a sequential basis, industrial production has been rising since April, except for a fallback in July, according to the Ministry of Statistics.

Dash said he had been "doubtful" whether the upward trend in industrial production was sustainable. "With this figure, we feel that yes, it's sustainable," he said.

The Ministry of Statistics also said July industrial production rose 7.2 percent, more than its initial estimate of 6.8 percent.

For the April-August period, industrial production is 5.8 percent higher than during the same period last year.

The strong numbers have reignited debate as to when the central bank will start hiking interest rates. Inflation, while still low, is on the rise, and some commentators believe the solidifying trend in industrial output will encourage the Reserve Bank of India to raise policy rates sooner rather than later.

Most economists expect the bank to hike rates in the first half of 2010, but opinion is split over whether tightening will begin in the first or second quarter.

Dash believes policymakers will be leery of stifling the "green shoots" now taking root in India's economy by tightening money supply too quickly.

"To encourage credit growth to happen, RBI (the Reserve Bank of India) is not going to take any action before the end of this financial year in March 2010," he said.

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