India's weak industrial output clouds recovery hopes

GMT 21:49 2014 Friday ,10 October

Arab Today, arab today India's weak industrial output clouds recovery hopes

Indian Prime Minister Narendra Modi (C)
New Delhi - AFP

Indian industrial production was unexpectedly weak in August, official figures Friday showed, suggesting that recovery of Asia's third-largest economy may still be some way off.
Output of factories, mines and utilities grew by a marginal 0.4 percent in August from the same month a year earlier, far undershooting a consensus market forecast of 2.2-percent growth.
The slack output was a dampener for the right-wing government of Prime Minister Narendra Modi, who took office in May following a landslide election win.
Modi has promised to revive an economy that grew by 4.7 percent in the last financial year to March, down from near double-digit expansion a few years ago.
"The data is indeed disappointing," said Debopam Chaudhuri, chief economist at ZyFin Research.
Manufacturing production, which represents three-quarters of the Index of Industrial Production, contracted by 1.4 percent in August.
"Sectors continue to reel under the slowdown," said A. Didar Singh, secretary general of the Federation of Indian Chambers of Commerce and Industry.
July output growth was revised downward to 4.4 percent from 4.5 percent, according to the data.
Factory output was hit in August by a 11.3-percent decline in production of capital goods such as plant equipment -- a harbinger of future investment intentions.Patchy consumer demand was underscored by a 6.9-percent shrinkage in production of consumer goods such as fridges and stoves.
"The fall in manufacturing growth has not yet bottomed out," FICCI's secretary general said.
"It is more worrisome to see negative growth in consumer and capital goods especially when we were hoping demand would pick up," he said.
The gloomy data came after the HSBC Manufacturing Purchasing Managers' Index, keenly watched as a portent of industrial expansion and overall economic health, suggested factory activity expanded at its slowest pace in nine months in September.
India's economy has posted two years of sub-five-percent growth, the longest slowdown in a quarter century, as the central bank kept interest rates steep to combat stubborn inflation.
But foreign investors have poured money into Indian stocks in hopes the new government's moves to clear infrastructure projects and create a more favourable business climate will lift growth and help India emulate China's economic ascent.
Growth in gross domestic product rallied to 5.7 percent year-on-year in the first quarter from April to June -- the best quarterly performance in two-and-one-half years.
But many economists said the showing was probably the best quarterly performance India would see during this financial year. The Reserve Bank of India has forecast growth of 5.5 percent for the current year.
Modi has been seeking to slash red tape, attract global firms to "make in India" and spur the manufacturing sector to create jobs for the army of young people who enter the workforce each year.
The central bank has ruled out any interest rate cuts to propel growth until consumer price inflation, running at 7.8 percent, comes down.

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