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Factory output data deepens India gloom

New Delhi, April 12, 2014

India's economic gloom deepened yesterday with a surprise contraction in industrial output, a fall in exports and a jump in the trade deficit, underscoring the enormity of challenges awaiting a new government that takes over in May.

Economic growth in Asia's third largest economy has almost halved to below five per cent in the past two years on weak investments and consumer demand, in the worst slowdown for the Asian nation since the 1980s.

Yesterday's government data, which measures production at mines, utilities and factories, provided no relief.

A continuing slump in capital and consumer goods sectors resulted in a surprise 1.9 per cent annual contraction in industrial production in February, which compares with analysts' median forecast of 0.9 per cent growth.

Manufacturing fell 3.7 per cent year-on-year in February. Industrial output has fallen in four of the last five months.

"Both consumer demand and investment conditions seem to be weakening, thereby further dampening the outlook for manufacturing," said Arbind Prasad, director general of the Federation of Indian Chambers of Commerce and Industry, one of India's industry chambers.

"Revival of manufacturing growth requires some bold reforms in the area of the business regulatory environment which should be the focus and priority for the (new) government," he added.

In other data yesterday, merchandise exports fell for a second straight month in March, widening the trade deficit to a five-month high.

The trade gap in March widened to $10.51 billion, its highest since October 2013, data from the Ministry of Commerce and Industry showed. Overseas sales of Indian goods fell 3.15 per cent from a year earlier to $29.58bn in March.

Merchandise exports for the 2013/14 fiscal year, however, grew 3.98 per cent year-on- year to $312.36bn. Together with an 8.11 per cent decline in annual imports, that helped sharply narrow the country's full-year trade shortfall to $138.59bn from $190.34bn a year ago.

Ratings agency Fitch, which affirmed India's sovereign credit ratings at 'BBB-' with a stable outlook yesterday, reckons its economic fortunes will remain uncertain until the elections are over.

"A policy push that includes structural and governance reforms, fiscal consolidation and efforts to rein in inflationary pressures would likely require a coherent coalition with a strong electoral mandate," it said.-Reuters




Tags: India | Factory Output | gloom |

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