India’s industrial output drops 5 pct

NEW DELHI - Agence France-Presse

An Indian laborer works on a construction site near the international airport in Mumbai yesterday. India’s industrial output shrank 5.1 percent year-on-year in October.

India’s industrial output shrank 5.1 percent year-on-year in October, well below expectations and piling pressure on the central bank to consider some monetary loosening after months of rate hikes.

The October figure released by the government marked a sharp slump from the 1.9 percent expansion posted in September, and was the first contraction in output for more than two years.

Manufacturing production, which accounts for around 75 percent of the industrial index, declined 6.0 percent year-on-year, while mining output was down 7.2 percent and capital goods output plunged 25.5 percent.

Siddhartha Sanyal, director and chief India economist with Barclays Capital in India’s financial hub, Mumbai, said the data had taken analysts by surprise.

“The actual numbers turned out to be significantly weaker than our expectations,” Sanyal told AFP.
“Every sub-segment had a decline, which makes the situation worse. There’s obviously quite a bit of pressure on the industrial segment.”

The sluggish output figures are likely to further undercut hopes that emerging markets such as India can power global growth as Europe and the United States struggle.

The weak figures buttressed expectations that India’s hawkish central bank might ease off on its tight monetary policy aimed at combating inflation which remains stubbornly high at nearly 10 percent.
A quarter-point interest rate rise by the Reserve Bank of India (RBI) in October was the 13th increase since March last year.

The RBI meets again on Dec. 16 and the latest output figures would seem to rule out any further rate hike.

“We really expect the status quo in terms of the rates... I think the increases are over,” Sanyal said.
The rupee has meanwhile hit record lows against the US dollar, as overseas investors abandon emerging markets and seek safe havens against global shocks.

In its mid-year analysis of the economy last week, the finance ministry slashed its economic growth forecast for 2011-12 to 7.5 percent, from a February estimate of 9.0 percent.

“The sharply deteriorating global economic environment has had a dampening effect on India,” the ministry said.

The economy grew 8.5 percent in the previous financial year.

Some private economists tip expansion this year to be as low as 6.5 percent, with the country shifting to a new, slower growth trajectory.