India industrial output slides 1.6%

NEW DELHI: India’s industrial output shrank by a shock 1.6 percent in May from a year ago, official data shows, adding to mounting gloom about Asia’s third-largest economy.
The contraction by India’s factories, mines and utilities was well below market expectations of a 1.5-percent production rise.
Manufacturing, which accounts for three-quarters of the Index of Industrial Production, slumped by 2.0 percent in May from a year earlier.
“These figures tell you very clearly 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, told AFP.
The figures marked more grim reading for Prime Minister Manmohan Singh’s Congress-led government which is desperately hoping for signs of a growth turnaround before fighting general elections due in the first half of 2014.
In another blow, April’s industrial output growth was cut to 1.8 percent growth from 2.8 percent reported earlier, the Central Statistical Office said.
But despite the weak production, the central bank is ill-placed to cut interest rates to kickstart the economy, which is under the threat of a credit ratings downgrade, economists said.
The rupee is hovering near lifetime lows against the dollar and separate data yesterday showed 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.
India’s economy has been struggling under the burden of high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a string of corruption scandals.
The scandals have stalled the government’s reform agenda after a blitz of liberalization initiatives last year.
While the central bank has cut rates three times since the start of the year following an aggressive hiking spree, borrowing costs remain high.
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.
But private economists have been reducing their forecasts in the past few months with most seeing growth in the five-to-six percent range.
In one piece of positive news from yesterday's string of downbeat data, June’s trade deficit from the previous month as gold imports slid in response to government duty hikes to curb consumer appetite for the metal.
The merchandise trade deficit narrowed to $ 12.2 billion in June from $ 20.1 billion in May, easing market worries about India’s gaping current account deficit — the broadest measure of trade.
Oil imports also fell to $ 12.7 billion from $ 15 billion in May. Oil and gold are the biggest contributors to the current account deficit. But despite a sharply weaker currency, June exports fell 4.6 percent to $ 23.79 billion.
Underscoring weak consumer demand, car sales slid nine percent in June from a year earlier, marking an unprecedented eighth straight month of decline, other figures showed, and prompting industry calls for a government package to revive the once-booming sector.
“This is certainly the worst period I have seen in a long time,” R.C. Bhargava, chairman of Japanese-controlled Maruti Suzuki, the country’s largest carmaker, said in an interview published yesterday.