India's industrial output rose by a slower-than-expected 1.8 percent in December compared with a

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year earlier, government data showed.

Analysts on average had expected a rise of 3.4 percent, a Reuters poll showed. The December figure compares with November's provisional increase of 5.9 percent.

COMMENTARY:

MADAN SABNAVIS, CHIEF ECONOMIST, CARE RATINGS, MUMBAI

"The numbers have turned out to be a big disappointment, and are far below our expectations.

"The major concern is whether we can recoup this loss in the next three months to meet the fiscal year target, given that we will be encountering a high base effect in January to March. It will be a big challenge."

ASHUTOSH DATAR, ECONOMIST, IIFL, MUMBAI

"Growth impulses are expected to remain weak through the next financial year and alongwith the expected easing in inflation, should provide the setting for RBI to cut rates.

"But the government needs to spell out that it will cut fiscal deficit in a big way in FY13 to enable the central bank to aggressively ease monetary stance. Therefore the budget will be a crucial event."

ARUN SINGH, SENIOR ECONOMIST, DUN & BRADSTREET, MUMBAI

"Though the latest IIP is a bit of a shocker, we really should not expect the RBI to cut interest rates till April as inflationary expectation in the economy has not come off. This is reflected in the high core inflation.

"The RBI will prefer to wait till it believes it has complete control over the inflationary expectations."



MARKET REACTION:

The BSE Sensex lost early gains immediately after the data, while the rupee weakened further to 49.65 to the dollar from 49.62.

The 10-year benchmark bond yield was at 8.21 percent, down 2 basis points from beforehand.