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Factory output contracts 0.4% in September

Domestic industrial activity, merchandise exports contract; retail inflation increases to 9.75%
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First Published: Mon, Nov 12 2012. 11 17 AM IST
The mining and electricity sectors’ production rose 5.5% and 3.9%, respectively. Photo: Pradeep Gaur/Mint
The mining and electricity sectors’ production rose 5.5% and 3.9%, respectively. Photo: Pradeep Gaur/Mint
Updated: Mon, Nov 12 2012. 11 42 PM IST
New Delhi: It wasn’t a good run-up to the Hindu festival of lights, Diwali, with government data released on Monday showing a contraction in domestic industrial activity and merchandise exports and an increase in retail inflation, belying the government’s expectations that the economy had bottomed out.
Data showed that factory output contracted 0.4% in September compared with a relatively robust growth of 2.3% in August; merchandise exports shrank for the sixth month in a row at 1.63% in October to $23.2 billion; and retail inflation rose marginally to 9.75% in October.
Planning Commission deputy chairman Montek Singh Ahluwalia termed the industrial production data for September “disappointing”. He said, “We have to look to the second half of the current year to see if the economy is actually going to do better. September data is obviously a bit of low point.”
That sentiment was echoed by C. Rangarajan, chairman of the Prime Minister’s economic advisory council, especially because “August industrial production rate showed a pickup”.
Growth in Asia’s third largest economy has been slowing, hitting a nine-year low of 5.3% in the quarter ended March before rising slightly to 5.5% in the following quarter. High inflation has forced the Reserve Bank of India (RBI) to keep interest rates high, crimping investment and consumer spending.
The contraction in the Index of Industrial Production (IIP) was mainly driven by a decline in the production of capital goods (-12.2%), which signifies investment demand in the economy, and consumer durables (-1.7%) such as television sets, refrigerators and washing machines—an indicator of consumption demand.
During the month, manufacturing output contracted 1.5%, while mining and electricity sectors’ production rose 5.5% and 3.9%, respectively.
At an aggregate level, in the first six months of 2012-13, ending September, factory output remained almost flat, growing only by 0.1% against 5.1% in the year-ago period.
RBI, in its mid-year monetary policy review released last month, said that a reversal of the downturn in industrial production depends on revival of investment activity. “To support revival in industrial growth, there is a need to take expeditious decisions to accelerate investments, especially by easing policy constraints and removing major supply bottlenecks,” it said.
Finance minister P. Chidambaram has proposed the creation of a National Investment Board under Prime Minister Manmohan Singh to speed up the clearance of large infrastructure projects. Though the environment ministry has raised objections to the proposal, economic affairs secretary Arvind Mayaram last week said that a final decision on the matter will be taken before the end of November.
Continuing bad news on the domestic and external economic front caused industry lobby groups to clamour for a cut in interest rates by the central bank, claiming the tight money policy regime was hurting sentiment.
RBI, in its monetary policy, had indicated a rate cut in its January policy review. “If macro-risks from inflation and twin deficits recede further, that could yield space down the line for monetary policy to respond to growth concerns,” it said.
Rising inflation may yet make the central bank’s job difficult. While retail inflation measured by the Consumer Price Index (CPI) rose to 9.75% in October from 9.73% in September, the headline inflation measured by the Wholesale Price Index had accelerated to a 10-month high of 7.81% in September from 7.55% in August.
Yes Bank Ltd chief economist Shubhada Rao said while Monday’s data will not go unnoticed by RBI, it is too early to warrant a change in its policy stance. Rao expects the central bank to continue to take liquidity easing measures and cut its policy rate only in the fourth quarter (January-March) by 50 basis points. A basis point is one-hundredth of a percentage point.
Citigroup India economist Rohini Malkani said in a research note that the bank maintained its estimate for growth and wholesale price inflation at 5.4% and 7.5-8%, respectively, for 2012-13. Chidambaram recently said he expected gross domestic product to grow 5.5-6% in the fiscal year ending 31 March.
Data released by the commerce ministry showed the trade deficit at a record high of $20.96 billion in October, as exports shrank and imports rose by 7.37% to $44.2 billion. While oil imports rose 31.63%, non-oil imports rose 1.73% during the same month.
Commerce secretary S.R. Rao said the sharp rise in oil imports could be for captive power generation due to the precarious power situation, especially in the southern states. He also said gold imports picked up significantly in October ahead of the Diwali festive season, further adding to the rise in overall imports.
PTI contributed to this story.
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First Published: Mon, Nov 12 2012. 11 17 AM IST