- POSTED: 12 Feb 2014 21:14
India's industrial output shrank by 0.6 percent in December, official data showed Wednesday, piling pressure on the government to bolster the struggling economy just months before elections.
NEW DELHI: India's industrial output shrank by 0.6 percent in December in the third straight monthly contraction, data showed on Wednesday, piling pressure on the government to spur the economy before elections.
The year-on-year output decline reported by the statistics ministry came amid stumbling consumer demand in the face of persistently elevated interest rates to curb stubborn inflation.
December's production was slightly better than the previous month's revised 1.3-percent contraction and exceeded analysts' expectations of a one-percent fall.
But it was still depressing reading for the scandal-plagued Congress government of Prime Minister Manmohan Singh, which opinion polls suggest is headed for a crushing defeat in the general election due by May.
While separate figures showed the consumer price index slipped in January to a two-year low of 8.79 percent, the output and inflation data "won't drive away the dark cloud that hangs over the outlook for the economy", said Capital Economics analyst Miguel Chanco.
Inflation "is still far too high for policymakers to be thinking of loosening" tight monetary policy that is slowing growth, said Chanco.
Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by 1.6 percent in December from a year earlier.
Capital goods output such as factory machinery, a harbinger of investment intentions, contracted three percent. Consumer goods production shrank an even deeper 5.3 percent, reflecting stuttering household spending.
India's nearly $2-trillion economy is on track for a second straight year of below-five percent growth.
The government has forecast 4.9 percent expansion in the current financial year to March 2014 after the economy grew by 4.5 percent the previous year, the most sluggish pace in a decade.
But many private economists believe the economy will expand in the low four-percent range, a far cry from near-double digit growth in boom times.
Manufacturing has been lacklustre as companies delay investment, discouraged by high interest rates and red tape in clearing industrial projects.
Many firms also are waiting to see the shape of the new government before committing investment funds.
But Moody's Investors Service, the global rating agency, said even the election of a strong coalition "would not act as a near-term game changer for Indian credit-worthiness".
India has been struggling to avert a downgrade to so-called "junk" investment status as growth totters.
"Growth trends over the past few decades show little direct correlation with election outcomes," said Rahul Ghosh, a Moody's senior research analyst.
The business-friendly Hindu nationalist Bharatiya Janata Party led by firebrand leader Narendra Modi is tipped by opinion polls to form the next government.
But if, as some analysts increasingly worry, a coalition of regional parties without a common economic reform agenda takes the helm, it could "provoke further capital flight, thereby increasing borrowing costs and weakening the rupee, and delaying economic recovery," Ghosh warned.
The rupee has tumbled sharply against the dollar in the past year as economic optimism has faded.
The government will table an interim budget next Monday to cover spending in coming months, but the next elected administration will present the regular full-year budget.
Finance Minister P Chidambaram may seek to cut manufacturing duties to spur industry in the budget while hewing to the government's "red line" fiscal deficit target of 4.8 percent of gross domestic product, analysts say.
In the budget on Wednesday for India's rundown railways, traditionally presented before the main budget, the government kept fares on hold in a voter-pleasing effort and announced more than 70 new trains.