Fri, Aug 10, 2012 - Page 15 News List

Indian industrial production drops


India’s industrial production contracted by a shock 1.8 percent from a year earlier in June, as manufacturing output shrank in Asia’s third-largest economy, official figures showed yesterday.

The data underscored the massive job ahead for new pro-market Indian Finance Minister P. Chidamabaram, who pledged this week to “restart the growth engine” of India’s sharply slowing economy.

Manufacturing output, which accounts for three-quarters of the index of industrial production, fell 3.2 percent from a year earlier in June, according to the government data.

Manufacturing has been undermined by high interest rates to combat stubbornly high inflation, falling business confidence and Europe’s debt crisis, which has hit exports.

The 1.8 percent shrinkage in output by factories, mines and utilities in June was the third contraction in four months and followed a revised 2.5 percent production rise in May.

The industrial output reading was far below analysts’ expectations, which were for an increase of 0.80 percent, according to a Dow Jones Newswires poll.

“This was another shocking industrial production release from India... and will inevitably heap more pressure on the central bank to re-start its rate cutting,” Credit Suisse economist Robert Prior-Wandesforde said.

The bank has said it wants inflation to come down before cutting borrowing costs, but Chidambaram has already indicated he wants lower rates, saying “sometimes it is necessary to take carefully calibrated risks.”

India’s once-booming economy grew just 5.3 percent between January and March — its slowest annual quarterly expansion in nine years.

The next quarterly growth figures are due at the end of the month but “the omens are not particularly encouraging,” Prior-Wandesforde said.

Capital goods output, an important investment indicator, slid 27.9 percent in June from a year earlier.

Manufacturing in Asia’s third-largest economy has been undermined by high interest rates to combat stubbornly high inflation of over seven percent, and Europe’s debt crisis which has hit exports.

“The situation calls for urgent policy measures both by the RBI as well as the government to salvage industry from further decline,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry business group.

Economists have already been taking a knife to their growth projections for the fiscal year to March next year with Goldman Sachs economist Tushar Poddar expecting 5.7 percent in contrast to the central bank’s forecast of 6.5 percent.

Glenn Levine, senior economist at Moody’s Analytics, yesterday said he believed growth would be closer to 5.5 percent.

Citibank has said if a nationwide drought is declared — which would be the country’s third in a decade — expansion could be as low as 4.9 percent

Already around a dozen of India’s 29 states have declared themselves “drought-affected.”

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