Indian industrial output shrinks unexpectedly
NEW DELHI — India's industrial output shrank unexpectedly in March, official data on Friday showed, piling pressure on policymakers to act swiftly to bolster the economy and dispel deepening investor gloom.
Manufacturing, mining and electricity output in Asia's third-largest economy contracted by 3.5 percent in March from a year earlier, sending the Indian rupee falling to near life-time lows against the dollar.
"Growth risks have clearly gained prominence... industrial production fell flat on its nose," HSBC's chief India economist Leif Eskesen said.
The weak numbers could push the central bank to cut interest rates again soon, economists said, even though India's stubbornly high inflation remains a worry.
Manufacturing production shrank by 4.4 percent in March while output of capital goods such as factory equipment -- an important investment measure and portent of future activity -- contracted by 21 percent.
The weak numbers came as China's industrial growth slowed to 9.3 percent year-on-year in April, the lowest in nearly three years. The indicators from the emerging market giants undermined hopes they can help power a global recovery.
India's downturn has been fed by weakening domestic and international demand, especially from the crisis-hit euro zone, as well as investor concern about government policy paralysis and widespread corruption scandals.
For the financial year ending March 2012, industrial production expanded by just 2.8 percent, sharply below its 8.2 percent growth the previous year.
Finance Minister Pranab Mukherjee voiced disappointment and conceded "investment recovery remains frail."
The central bank reduced borrowing costs in April for the first time in three years in a bid to spur growth but warned scope for more cuts is restrained by still strong inflation nudging seven percent.
However, "given the sharp fall in output growth and the dismal investment activity, the bank is likely to ease the policy rates further from June," said Arun Singh, economist at Dun & Bradstreet India.
The government has forecast 7.6-percent growth for this fiscal year, up from 6.9 percent last year, but economists' expectations are much lower.
"There is a near absolute belief of a sharp downgrade (by the government) in the estimated growth rate to between 6.5 percent to seven percent," Ajay Bodke, investment strategy head at Mumbai's Prabhudas Lilladher, said.
While such growth would be the envy of much of the world, experts say at least nine to 10 percent expansion is needed to reduce India's crushing poverty.
The economy grew by over nine percent for three years until 2007-08 and the government says it is confident of steering India back to a high growth path.
But the failure of Prime Minister Manmohan Singh's government's to enact key reforms and regulatory flip-flops have deterred vital investment needed to boost growth.
Doubts are also mounting about India's ability to check a ballooning fiscal deficit amid populist subsidies to help the poor.
The worries have put further pressure on India's battered currency which fell by a fifth of a rupee following the output data to a near record low of 53.60 against the dollar.
The Bombay Stock Exchange's 30-stock Sensitive Index slid by nearly a percentage point to 16,292.98 points.
"A strong perception of policy paralysis has taken root among both local as well as foreign investors," Prabhudas Lilladher's Bodke told AFP. "A lot more needs to be done in terms of improving the economic environment."
AFP: Indian industrial output shrinks unexpectedly
In India, Slump in Production Puts Pressure on Rupee
MUMBAI — Indian industrial production unexpectedly contracted in March, according to government data released Friday, as weaker domestic demand and tumbling exports hurt the economy and undermined the central bank’s efforts to shore up a sliding rupee.
Production at factories, utilities and mines declined 3.5 percent from a year earlier, the Central Statistical Office said in a statement in New Delhi, compared with a 4.1 percent increase in February. Economists had predicted an increase of 1.7 percent.
The report may stoke concern that India’s outlook has worsened because of trade and fiscal deficits, political gridlock, inflation and the threat to global growth from the European debt crisis.
The risks have pushed the nation’s currency toward a record low, prompting the central bank, the Reserve Bank of India, to say Friday that exporters would have to convert half of their foreign currency earnings into rupees as the bank stepped up efforts to check the decline.
Manufacturing contracted 4.4 percent in March from a year earlier after a 3.9 percent advance in February, the data showed. Mining fell 1.3 percent, after a 2.7 percent gain the previous month. Electricity output rose 2.7 percent.
“The contraction in output data reconfirms weakening demand both domestically and externally,” said Radhika Rao, an economist in the Singapore office of Forecast, a financial market analysis company. “Even though growth is slowing, from the policy perspective, the focus will be more on inflation, especially due to the impact of the huge decline in the rupee on prices.”
The Indian currency has lost more than 16 percent of its value over the past year, the most among Asian currencies.
The central bank cut interest rates last month for the first time since 2009 to bolster spending at home. The bank cited price pressures from the fiscal deficit, energy costs and the weaker rupee.
“We are in a scenario where the tendency for interest rates is going to be downwards,” Subir Gokarn, a deputy governor of the Reserve Bank of India, said in Bangalore on Friday. “The pace and the magnitude is obviously going to be determined by how inflation goes, but the direction is now fairly evident.”
http://www.nytimes.com/2012/05/12/b...ump-in-production-puts-pressure-on-rupee.html
