India records weak output, rising inflation

NEW DELHI: India’s industrial production shrank in March for the fifth time in sixth months, data showed, underscoring the challenge facing the next government to revive Asia’s third-largest economy.
Output from India’s mines, factories and utilities contracted by 0.5 percent year-on-year in March, according to the data.
Manufacturing output slid by 1.2 percent, while output of capital goods, such as plant equipment — a harbinger of future investment — plunged by 12.5 percent.
“The figures show the next government will inherit an economy with very little positive momentum,” said Capital Economics analyst Miguel Chanco.
Exit polls suggested the Bharatiya Janata Party (BJP) and its allies would form the next government, ousting the Congress party.
Official election results will be announced on Friday.
Even though the headline industrial output figure beat market forecasts for a 1.5 percent contraction, the new government faces “enormous” challenges to revitalize the economy, said Deepak Lalwani, head of India-focused investment consultancy Lalcap.
The economy grew by just 4.9 percent in the year to March 2014, according to government estimates, half the rate it notched up during India’s boom times.
The BJP, led by chief minister of thriving western Gujarat state Narendra Modi, has promised steps to counter India’s worst slowdown since the 1980s, such as fast-tracking investment approvals and improving roads and other creaking infrastructure.
But analysts see little chance of a swift turnaround as separate figures Monday showed consumer prices rising to 8.59 percent in April from 8.31 percent in March year-on-year — one of the highest rates globally.
The stubbornly high inflation reduced scope for the hawkish central bank to cut interest rates to stimulate the economy, analysts said.
Central bank governor Raghuram Rajan has insisted curbing inflation is key to a sustained economic recovery.
“Policymakers will remain constrained in their capacity to respond to the weakness of the economy by the continued high level of inflation,” said Capital Economics’ Chanco.
Opinion polls show support for Congress has fallen in part because of high inflation which eroded the buying power of hundreds of millions of the poor.
But despite months of weak data, investors have been racing to put their money in India. The Bombay Stock Exchange’s benchmark Sensex index hit a record closing high for a second straight trading day, rising 2.42 percent to 23,551 points.
India’s rupee firmed at 59.51 to the US dollar, its highest in nearly 10 months.
Since the BJP chose Modi as its prime ministerial candidate last September, the Sensex has gained over 19 percent, but analysts said the bull run could end in tears.
“For now, election euphoria is the order of the day,” said Chanco, but if the new government failed to impress quickly, “investor optimism could soon turn to more widespread investor disillusion,” drying up foreign inflows.
Chanco added he was also skeptical about the “ability of any government to deliver sudden change,” due to a fractured political system that slows decision-making.