Falling industrial output numbers in Feb. due to high base effect: Analysts

According to Sheth, through different programs, the government is injecting money into the system but IIP numbers will not improve quickly till private sector demand picks up. "Our forecast is that some time in April, you will see IIP turn positive," she said.

According to Sonal Varma, economist at Nomura Financial, although industrial output contracted in February on a year-on-year basis, things are not as bad as they look.

"Given the very high base effect and lesser working days in February, the industrial output growth is not as bad as the headline suggests. The pick-up in consumer durables and capital goods is a positive sign. Our view is that real GDP growth will bottom out at 4.5 percent in the second quarter of 2009, with a gradual recovery thereafter in the second half of fiscal year 2009-10 as policy measures begin to have an effect," Varma said.

According to Varma, the sequential momentum has gathered and while external demand continues to be weak, there are tentative signs of better domestic demand.

"The pick-up in consumer durables and capital goods is a positive sign," Varma said.

"This reading is consistent with our expectation of average IIP growth of 2.5 percent for the year as a whole. However some early signs of revival are already seen, especially in sectors like auto, cement and steel. From April onwards we may see positive readings for IIP," said Rupa Rege Nitsure, chief economist at Bank of Baroda.