Factory output seen shrinking in March, inflation to remain high

India's factory output in March probably contracted for the fifth time in six months as manufacturing remained weak while more expensive food and fuel likely pushed inflation higher in April, a Reuters poll found.

The median consensus from a poll of more than 20 economists suggested industrial production in March fell 1.5 percent from the year before.

While that is better than February's 1.9 percent contraction it is a reflection of the rut gripping Indian factory activity from weak consumer and investment demand.

"The manufacturing sector has been fairly weak for the longest time. There is not much of a reprieve in my view," said Andi Ji, economist at CBA.

The manufacturing component of the index fell 3.7 percent year-on-year in February.

Growth in Asia's third-largest economy has dropped to a decade low of around 5 percent in the last two years, but analysts are hopeful of a pick-up and faster implementation of reforms if a stable, full-majority government takes over after ongoing elections.

"We can expect some improvement in the economic activity after September 2014 - provided that we get good rains and a stable government", said Arun Singh, senior economist at Dun & Bradstreet.

The ruling Congress party's failure to implement reforms and revive the economy has turned the opposition Bharatiya Janata Party's pro-business leader Narendra Modi into the overwhelming favouite to head the new government.

Inflation to remain high

Inflation probably remained stubbornly high in April, despite the Reserve Bank of India having increased interest rates three times since September.

Economists in the poll expect April retail inflation to edge higher to 8.48 percent from a year earlier, while wholesale prices likely rose 5.73 percent.

In March, retail and wholesale inflation climbed 8.31 percent and 5.70 percent, respectively.

"It should be slightly higher because food inflation should pick up because of some seasonal weather patterns and hail storms (affecting crops)", said Ashutosh Datar, economist at IIFL.

Inflation has cooled in recent months but a sudden surge in prices from costlier food could unsettle the RBI - especially since a further rate hike may be detrimental to growth.

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