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.

two years, way above a target of 4 percent recently proposed by a central bank panel.

In an attempt to quell price pressures, new Reserve Bank of India (RBI) chief Raghuram Rajan has raised interest rates three times since September, even though economic growth is languishing at around a decade-low of 4.5 percent. The central bank is next due to review rates on April 1.

"Even with tepid growth and falling inflation, the Reserve Bank of India is unlikely to lose its focus on managing inflation expectations," analysts at Barclays wrote in a note after the data.

Elevated prices and a slowing economy have pressured household budgets and company profits, hitting consumer demand as well as corporate investments.

Contracting industrial output and investment growth that is on track to hit an 11-year low pulled down economic growth to a worse-than-expected 4.7 percent in the quarter to December.

The majority of the chief executives of Indian firms expect the economic situation to remain unchanged over the next six months, a survey carried out by an industry chamber showed this week. Many firms are wary of committing fresh investments before the election outcome is known.

This leaves election spending, estimated to be as high as 0.5 percent of gross domestic product (GDP), as the main hope for a growth uptick.

Easing inflation, marginal factory growth raise rate cut hopes

(PTI) Retail inflation easing to a 25-month low of 8.1 per cent in February and a slight improvement in industrial growth have raised hopes for a rate cut by the Reserve Bank next month to boost economic activity.

Industrial output entered positive territory in January with a modest growth of 0.1 per cent after contracting for three months in a row.

Encouraged by the improvement in the price situation, India Inc stepped up its demand for a rate cut by the Reserve Bank in its monetary policy scheduled on April 1.

As per Consumer Price Index data released today by the Central Statistics Office, easing of onion and potato prices pulled the retail inflation rate lower in February.

Overall inflation in the food basket, including beverages, slowed to 8.57 per cent in February from 9.9 per cent in the previous month, according to the data.

"This should spur the RBI to give a predominance to growth and cut interest rates in its forthcoming monetary policy as the negative growth of capital and consumer goods, especially consumer durables, reinforces the view

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