India’s industrial production dropped by 0.4 per cent in the final month of 2016 compared to the same period the year before, confounding expectations of a 1.2 per cent rise in output.

The fall marked a steep decline from the previous month, when India’s industry sector grew 5.7 per cent.

Industrial production in India was volatile for much of last year, often swinging between contraction and growth on a monthly basis. November’s strong print followed a contraction in October but an expansion the month before that.

The fall in industrial production for December follows prime minister Narendra Modi’s unexpected decision in November to scrap larger-denominated banknotes in a bid to clamp down on black market activity, raising concerns over the effect on India’s economic growth.

On Wednesday India’s central bank surprised markets by keeping its key interest rate unchanged at 6.25 per cent, confounding the expectations of some economists that it would cut rates to spur growth.

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