Indian manufacturers increased production in August, although at a slower pace than in July, as infrastructure output rose, but access to cash was tougher, a Reuters poll found.
Production at factories, mines and utilities rose 2 per cent year-on-year in August, slower than July's 2.6 per cent increase, the poll of 28 economists predicted.
"While the sharp surge in the capital goods production distorted July's performance, August numbers might benefit from seasonal lift in demand and strength in core industries' output," said Radhika Rao, economist at DBS.
Infrastructure output at India's core industries, which accounts for over a third of factory production, grew 3.7 per cent annually in August.
The pace of growth among those industries, which include coal, cement, electricity and crude oil, was faster than July's 3.1 per cent.
But overall growth was restrained as the Reserve Bank of India's (RBI) steps in July to stabilise the battered Indian rupee effectively soaked up cash from the short-term lending market.
Talk since May that the U.S. Federal Reserve would dial back its asset purchases last month had led to an exodus of funds from emerging markets and the Indian rupee, burdened by a high current account deficit, was hurt the most.
"The bigger picture or outlook is turning more positive but near term there will be some side effects, a partial collateral damage that comes about from the policy measures taken," said Vishnu Varathan, economist at Mizuho Corporate Bank.
With the RBI now unwinding the tightening measures it had taken and an increase in overall demand from India's festive season which kicked off this month, industrial production is expected to pick up.
But, not all economists were convinced any improvement in factory output will be sustainable, particularly as recent manufacturing purchasing managers' index (PMI) surveys have shown activity shrank in August and September.
"PMI manufacturing readings also remain below the 50-neutral mark on the back of moderation in new domestic and export orders," said DBS' Rao.
"A sustained pick-up in factory output is unlikely beyond the transient support from seasonal demand."
Copyright Thomson Reuters 2013
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