(MENAFN- AFP) India's industrial output shrank by a surprise 1.8 percent in October from a year earlier, its first contraction in four months, reflecting the still fragile state of Asia's third-largest economy, data showed Thursday.
The fall was bigger than market expectations of around 1.1 percent and was a far cry from the double-digit rises that India enjoyed when the nation's economy was booming.
Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by two percent in October, the government data showed.
But in one positive sign, production of capital goods like factory equipment -- an important guide to investment plans -- climbed 2.3 percent on the year.
India's economy grew at a decade low of five percent in the last financial year to March 2013, due in part to high interest rates to combat stubbornly high inflation that has slowed borrowing and spending.
Finance Minister P. Chidambaram has said that he expects growth at a similar rate this year, as the government struggles to turn the economy around in time for general elections due by May.
Exports have picked up on the back of a weaker rupee, but economists say higher overseas sales can only help the economy at the margins, since growth in the nation of 1.2 billion people is still mainly domestically driven.
Despite calls by business for cheaper loans to revive the economy, the central bank has raised its key lending rate twice since September to try to curb inflation.
But consumer price inflation, compiled from a narrower basket of goods but increasingly watched by economists alongside the benchmark Wholesale Price Index, jumped to 11.24 percent in November from 10.19 percent in October.
The rising inflation has created huge hardship for India's millions of poor, and stoked expectations of another rate hike.
With "troublesome" inflation moving higher "a rate response remains on the cards", said Credit Suisse economist Robert Prior-Wandesforde in a note to clients.
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