NEW DELHI: India’s industrial output shrank by a shock 1.6 percent in May from a year ago, data showed yesterday, adding to mounting gloom about Asia’s third-largest economy.
The contraction in output by factories, mines and utilities was far below market forecasts of a 1.5-percent rise while in another blow, April’s industrial output growth was revised to 1.8 percent from 2.8 percent expansion earlier.
“Industrial recovery is not yet in sight — this is definitely a surprise on the downside,” D K Joshi, chief economist of India’s leading credit rating agency Crisil, said.
The figures marked more grim reading for Prime Minister Manmohan Singh’s Congress-led government which is desperately hoping for an economic rebound before elections due in the first half of 2014.
“Industry has slipped into a serious crisis,” said business leader Rajkumar Dhoot, as the data showed manufacturing, which accounts for three-quarters of the Index of Industrial Production, had slumped by 2 percent in May.
Dhoot, chief of the Associated Chambers of Commerce and Industry, predicted “large-scale job losses” and pointed to production shutdowns already announced by the once-booming car sector.
Despite the weakness, the central bank is ill-placed to cut interest rates to kick-start the economy with the rupee near lifetime lows and separate data Friday showing retail price inflation climbing to 10.13 percent in June from 9.65 percent in May.
“For any policymaker, it is a very challenging time. You have urgent situations over the rupee, inflation and now manufacturing,” Joshi said. “There is no magic wand except that the government must start implementing some of the economic reforms it has been promising,” he said.
While the bank has cut rates three times since the start of 2013 following an aggressive hiking spree, borrowing costs remain high. The disappointing data comes as Finance Minister P Chidambaram is in the United States this week on his second trip in three months to woo foreign investment — seen as key to strengthening the currency and spurring growth.
The government has forecast the economy will grow by at least six percent in the financial year that began April 1, after expanding by five percent last year — its slowest pace in a decade.
In one piece of positive news, June’s trade deficit narrowed from the previous month as gold imports slid in response to government duty hikes to curb consumer appetite for the precious metal. The merchandise trade gap fell to $12.2bn in June from $20.1bn in May, easing market worries about India’s gaping current account deficit—the broadest measure of trade.
AFP
