India Industrial Output Growth Hits Two-year Low - Source Industry Week

India Industrial Output Growth Hits Two-year Low

The country's 1.9% industrial expansion in September undershot market forecasts of a 3.5% jump and added to a gloomy picture of an economy that is losing traction due to 13 interest rate hikes since March 2010.

By Penny MacRae, Agence France-Presse

Nov. 11, 2011

As a string of interest rate rises took their toll on Asia's third-largest economy, India's industrial output growth skidded to a two-year low in September, data showed on Nov. 11.

The country's 1.9% industrial expansion in September undershot market forecasts of a 3.5% jump and added to a gloomy picture of an economy that is losing traction due to 13 interest rate hikes since March 2010.

"There's a clear slowdown, definitely monetary policy is biting," said D.K. Joshi, chief economist at leading Indian credit rating agency Crisil.

The sluggish output figures, the weakest since September 2009, also undercut hopes that emerging markets such as India can power global growth as Europe and the United States struggle.

Earlier this week, neighboring China reported industrial output rose 13.2% year-on-year in the first 10 months of 2011, slower than the 14.2% growth recorded in the first nine months of the year.

India's manufacturing production rose 2.1% in September, but output of capital goods such as factory equipment -- a key pointer to future activity -- as well as consumer goods and mines all shrank.

"We are concerned that the pace of growth in the economy has gone down," senior government economic planning advisor Montek Singh Ahluwalia said.

The weak figures buttressed expectations that India's hawkish central bank would pause in hiking rates to combat inflation even though it remains stubbornly high at nearly 10%, analysts said. The bank signaled that last month's quarter-point rate rise could be the last for 2011 and that worries about growth would assume greater prominence. The Reserve Bank of India's anti-inflation battle has been one of the most aggressive globally, but has had little obvious impact. On Nov. 11, food inflation fell nearly half a percentage point from the previous week but still stood at a hefty 11.81% for the week.

Overall inflation, measured monthly, stands at 9.72% with some analysts expecting a slight rise when figures are released next week.

The string of rate rises has weakened consumer demand during the ongoing festive season across a range of sectors, from cars to property, as loans become costlier while inflation erodes incomes. The latest figures cap a string of data showing the economy losing ground. Car sales in October fell nearly 24%, the most in close to 11 years, while October's annual export growth was the slowest in two years.

The weakening economy has put pressure on federal finances with doubts mounting about the government's ability to meet its goal of containing the fiscal deficit to 4.6% of gross domestic product as tax revenues fall.

Copyright Agence France-Presse, 2011

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