India is hurtling towards an industrial recession.
The government said on Friday that the Index of Industrial Production in October was 0.4% lower than what it was a year ago. This is the first such decline in industrial output since 1993.
Why is this happening? The most obvious reason is the implosion in global demand. Indian exports have already recorded double-digit declines in October and November. Imports continue to rise, which could put the balance of payments under immense pressure.
But that cannot be the entire story. India is far less dependent on exports than some countries such as China are. The unexpected decline in industrial output suggests that domestic demand, too, is shrinking very fast. The fact that production in consumer goods has shrunk more than the overall index suggests that consumer spending is weak. Investment spending seems to be holding out for now.
The recent interest rate cuts and fiscal stimulus will make an impact a few months later. Forget 8%: even a 7% growth rate seems unlikely now.