Indian industrial production slid in June for the third time in four months, with output of capital goods plunging the most on record, adding to signs of faltering growth in Asia’s third-largest economy.
The Central Statistical Office said that production at factories, utilities and mines declined 1.8% from a year earlier, after a revised 2.5% rise in May. The median of 27 estimates in a Bloomberg News survey was for a 0.4% climb. Capital goods output, an indication of investment in plants and machinery, slid 27.9%.
Indian manufacturing has been subdued in recent months as inflation above 7% saps domestic demand and Europe’s debt crisis crimps exports. Price pressures from a drop in the rupee and the impact of a weak monsoon on crops forced the central bank to leave interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil to Europe.
Brinda Jagirdar an economist at State Bank of India in Mumbai said that “The negative trend coming in between a looming drought like situation is very, very worrying. Our problems are compounding. We need quick and decisive policy actions to revive growth, otherwise we’ll see a severe collapse.”
The rupee, which has slumped about 18% against the dollar in the past 12 months, strengthened 0.2% to 55.295 per dollar at the 5 PM close in Mumbai. The BSE India Sensitive Index of stocks pared earlier gains and fell 0.2%. The yield on the 8.15% government bond due in June 2022 was little changed at 8.14%.
Outlook Dims
Manufacturing fell 3.2% in June from a year earlier, today’s data showed. Mining gained 0.6% and electricity output rose 8.8%. A separate report in China showed that nation’s industrial production advanced 9.2% in July from a year earlier, less than analysts had estimated.
The drop in Indian capital goods production in June from a year earlier is the steepest since at least April 2006, according to data compiled by Bloomberg.
Forecasters from Goldman Sachs Group Inc. to Citigroup Inc. this month lowered predictions for Indian economic expansion while raising inflation estimates and scaling back expectations for interest-rate reductions by the Reserve Bank of India.
Goldman cut its growth outlook for the 12 months through March 2013 to 5.7% from 6.6% and said wholesale prices may climb 7.2%, up from an earlier estimate of 6.5%. Citigroup said Indian gross domestic product may rise as little as 4.9% in 2012-2013 if a drought takes hold. India’s more than 235 million farmers depend on the rains.
Chidambaram’s Challenge
The Reserve Bank left the benchmark repurchase rate at 8% on July 31, while cutting the amount of deposits lenders must keep in government bonds to spur lending. Headline inflation was 7.25% in June, the fastest pace among the world’s largest emerging markets.
Finance Minister Palaniappan Chidambaram, who was appointed last week, has said he intends to take steps to reverse the slowdown in manufacturing. He has also pledged to clarify tax laws and contain the budget deficit as he tries to assuage concern that the nation’s outlook is deteriorating.
Source - Bloomberg
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