NEW DELHI: India reported yesterday that industrial output grew by an unexpectedly sluggish 0.5 percent in July, dimming hopes that Asia’s third-largest economy is set for a sustained recovery.
The half-percentage-point annual growth in production by mines, factories and utilities was the weakest in four months.
The data underscored the uphill job facing right-wing premier Narendra Modi, who has just marked 100 days in power, to fulfil an election pledge to lift India out of its longest spell of sub-five percent growth in a quarter-century.
The figures, released after financial markets closed, “have dampened hopes that the (industrial) sector is on the cusp of a sustained recovery”, said analyst Shilan Shah at research house Capital Economics.
Foreign investors have poured billions of dollars into India’s stockmarkets in hopes the economy is rebounding.
But the industrial output growth was far below market forecasts of a two-percent jump and marked a sharp slowdown from a revised 3.9-percent expansion in June.
Overall manufacturing growth shrank by one percent in July from a year earlier.
Most startling was a contraction in production of capital goods such as excavators, forklifts and other plant equipment — a signal of investment intentions and future economic growth.
Capital goods output shrank by 3.8 percent in July after posting a year-on-year leap of 23 percent the previous month.
While industrial output numbers can be volatile, “this was a major pullback”, said Debopam Chaudhuri, chief economist at ZyFin Research. Consumer goods output contracted by a hefty 7.4 percent, underscoring still weak consumer confidence.
Figures showed last month that India’s gross domestic product (GDP), the widest calculation of goods and services output, grew by 5.7 percent in the three months to June 30, the best quarterly showing in two-and-a-half years.
But some economists said that GDP expansion might as good as it gets for this financial year which ends in March 2015.
Yesterday’s figures showing the broad-based deceleration in industrial output alarmed business leaders who called for the government to accelerate efforts to clear bureaucratic logjams hindering stalled infrastructure projects.
“We were hoping the slowdown in manufacturing had bottomed out, but it appears manufacturing may not out be out of the woods,” said Sidharth Birla, president of the Federation of Indian Chambers of Commerce and Industry.
However, there was a silver lining in the batch of data released Friday. India’s stubbornly high consumer price inflation eased in August to 7.8 percent year-on-year from 7.96 percent the previous month.
The inflation data reduces pressure on the hawkish central bank to hike already-steep interest rates that have hindered growth-stimulating investment, economists said. “The good news is that inflation has also slowed, which could open up the possibility of interest rate cuts in order to support the economy over the coming months,” said Capital Economics’ Shah.
AFP
