Indian industrial output growth slumped to below one percent in August, official data showed Friday, surprising markets and underscoring the weakness of Asia's third-largest economy.

Production by factories, mines and utilities grew by just 0.6 percent in August from a year earlier, the Central Statistical Office said.

It had climbed by a revised 2.75 percent the previous month, triggering hopes of an economic revival.

"Industrial growth has relapsed," said Capital Markets economist Mark Williams.

"These figures extinguish some of the hopes lit when output growth picked up in July -- which marked the first positive growth rate in three months," he added.

The August performance undershot a market consensus forecast of a two percent output rise, and was a far cry from the double-digit increases India enjoyed for large parts of the last decade when the South Asian economy was booming.

Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, was broadly flat in August from a year earlier.

Production of capital goods such as factory equipment -- a key signal of investment intentions -- contracted by two percent.

"The figures underline the trouble industry is in," Williams said.

While exports have picked up on the back of a depressed rupee, economists said higher overseas sales can only help the economy at the margins as India's growth is still mainly domestically driven.

Despite calls by business to boost the economy, stubbornly high inflation leaves little scope for India's central bank to spur consumer demand by lowering borrowing rates.

"The signs of industrial activity witnessed in July have fainted," said D.S. Rawat, secretary general of the Associated Chambers of Commerce and Industry of India, urging policymakers to do some "serious thinking" about how to revive the economy.

The weak figures come after the International Monetary Fund (IMF) earlier this week slashed its growth forecast for India to 3.8 percent for the current year, down by nearly two percentage points from an earlier projection, and in line with the most pessimistic forecasts by private economists.

The IMF forecast was far below central bank expectations of five to 5.5 percent growth, and has been rejected by India's government.

"We do not share their pessimism," Finance Minister P. Chidambaram said in a speech in Washington.

Reserve Bank of India governor Raghuram Rajan, meanwhile, dismissed fears India could face a balance of payments crisis, despite a gaping current account deficit -- the broadest trade measure -- which has put the nation's currency under pressure.

With foreign exchange reserves of $280 billion, "there's no way we are close to being a country in financial or economic crisis," Rajan told a CNN debate.

"There's not a chance we will go to the IMF for money in the next five years," Rajan added.

In 1991, a foreign-exchange strapped Indian government pawned its gold reserves in exchange for IMF loans.

Rajan said while India's economy has slowed, its forex reserves are sufficient to tide it through any rough financial waters.

"We need to bring back growth now. But we're still doing better than a significant number of economies in the world," he said.

 

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