India's industrial output grew at a modest 2.7 percent in August compared to the same period a year ago, beating the analysts' expectation of a 1.1 percent growth. The data was released by the government of India on Friday. The Index of Industrial Production (IIP) had recorded a flat 0.1 percent growth in July 2012.

The cumulative growth for April-August, 2012-2013, over the corresponding period of the previous year showed a growth of 0.4 percent suggesting that the economy is showing signs of recovery.

The manufacturing sector output which constitutes 75 percent of the IIP rose by 2.9 percent annually compared to a decline of 0.2 percent in July and the mining sector recorded a 2 percent growth in August versus a decline of 0.7 percent in July 2012.

The electricity sector grew at a modest 1.9 percent against 2.9 percent growth in the previous month, as recorded in the data released by the Central Statistics Office of the Ministry of Statistics and Program Implementation.

Consumer durables recorded a growth rate of 4.0 percent and consumer nondurables grew at 5.8 percent in August, while in July 2012, consumer durables had recorded a robust growth rate of 1.4 percent and consumer nondurables grew at a marginal 0.1 percent.

The basic goods grew at 2.8 percent in August. However, the index for capital goods sector declined by 1.7 percent in August, indicating a continuing sluggishness in the production and manufacturing sector.

Economists are of the view that the data is nothing to cheer about. Although it definitely strengthens the demand for interest rate cuts from the industry, analysts believe that there is a little chance of rate cuts in the near future as the inflation still remains well above what RBI states as comfort levels. RBI’s next quarterly review of monetary policy is scheduled on Oct. 30.

"We would be cautious in saying these mark a revival in growth. Unless the impediments to investment are removed, there is unlikely to be a significant turnaround in the near future," said Jyotinder Kaur, economist at HDFC bank in New Delhi, Reuters reported.

"From the central bank's policy point of view, the headline inflation number remains crucial, and the factory output print coming a little higher than expected is not going to make a big difference," he added.

India's BSE Sensex was trading at 18,716.95, down by 81.95 points or 0.44 percent at 1.20 p.m. local time.

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