New Delhi: India’s factory output fell for the third time in four months in January, and with government and central bank steps to lift a sagging economy likely to take months to kick in further falls are expected.
Industrial production fell 0.5% in January from a year earlier, a marginally better performance than the previous month’s upwardly revised contraction of 0.6 percent.
The Indian economy is largely driven by domestic demand, unlike many other Asian economies which depend on exports. But expensive credit and then the global slump have dented confidence at home and slashed overseas sales of Indian goods.
Economists said aggressive monetary easing by the Reserve Bank of India (RBI) since October and government stimulus would only help factory output recover later in the year.
“The number was largely in line with consensus and there were no negative surprises. The February number might be positive but we expect a negative number in March,” said Atsi Sheth, chief economist at Reliance Equities, in Mumbai.
“Today’s number reflects both the global slowdown and the RBI’s tightening in the first half of 2008. The effects of the easing policy and the fiscal stimulus packages will be apparent only after August 2009.”
With national elections to be held in April and May, the ruling Congress party-led coalition could suffer if the slowdown results in further large job losses.
It had hoped to trumpet an economy which had been racing along at 9% growth rates for the last three years but is now facing headlines of layoffs and falling revenues.
January’s contraction in factory output was just below a forecast for a decline of 0.4% from a year earlier in a Reuters poll of economists.
Manufacturing production fell 0.8%. Exports dropped an annual 16% in January.
Inflation data released on Thursday showed India’s wholesale price index rose 2.43% in the 12 months to 28 February, below the previous week’s annual rise of 3.03%.
The benchmark stock index extended gains to more than 2% after the industrial output data. It later crossed 3%. The rupee and government bonds remained largely steady.
Industrial output growth has slowed sharply from annual rates above 10% in 2006 and the first half of 2007. In October, factory output contracted for the first time in 13 years, and fell an annual upwardly revised 0.6% in December.
Since October, the central bank has cut its key lending rate by 400 basis points, while the government has slashed factory gate duties and service tax to protect growth and jobs.
In the December quarter, the economy expanded 5.3 % its slowest pace in almost six years.
Authorities now say growth in Asia’s third-largest economy is likely to slow to around 7% in the current fiscal year to March 2009.
But analysts say growth could be even lower, and expect wholesale price inflation to drop further to between 1.5 and 2 % by March-end.