Indian industrial output see shocking shrinkage in June

NEW DELHI - Agence France-Presse

India’s industrial output shrank by a shock 1.8 percent in June, data showed yesterday, highlighting the challenge for new finance minister P. Chidambaram to reverse the nation’s sharp growth slowdown.

Manufacturing output, which accounts for three-quarters of the Index of Industrial Production, was chiefly to blame, falling 3.2 percent from a year earlier in June, according to government figures. The output fall defied market forecasts of growth of close to one percent and came as the country faces the spectre of its third drought in a decade that would further reduce growth.

“This was another shocking industrial production release from India... and will inevitably heap more pressure on the central bank to re-start its rate cutting,” said Credit Suisse economist Robert Prior-Wandesforde. India’s economy grew just 5.3 percent between January and March -- its slowest annual quarterly expansion in nearly a decade. The next quarterly growth figures are due at the end of the month but “the omens are not particularly encouraging,” said Prior-Wandesforde.

The shrinkage was the third contraction in four months and followed a revised 2.5 percent production rise in May. Capital goods output, a vital investment signal, slid 27.9 percent in June -- the largest contraction on record according to Credit Suisse.