Indian industrial output shrinks
India’s industrial output unexpectedly contracted on weak consumer demand in September, adding to pressure for action by the government with Asia’s third largest economy increasingly likely to post its slowest growth in a decade.
Data released by the Central Statistics Office (CSO) on Monday showed output at factories, mines and utilities shrank an annual 0.4 per cent. That was sharply in contrast with a forecast of 2.8 per cent growth in a Reuters poll.
Manufacturing output, which accounts for the bulk of industrial production and contributes about 15 per cent to overall GDP, fell 1.5 per cent in September from a year ago.
India’s festival season, which began in September and will peak this month, was expected to bolster the output data. The sharp slump in output will bolster calls for an interest rate cut from the Reserve Bank of India to perk up the economy.
“Typically, some kind of inventory buildup also happens in September, so the numbers are all the more disappointing,” said Anjali Verma, an economist with MF Global in Mumbai.
“Going by RBI’s guidance, the IIP numbers will now make a strong case for a rate cut to happen in January.”
The central bank has so far rebuffed calls for interest rate cuts, saying prices are still rising too fast to risk loosening policy much, and it also wants the government to bring down a worryingly high fiscal deficit. The bank says rising rural wages, a result of government policies, are also stoking infla- tion. The next monetary policy review is due in December. The central bank has said any interest rate cut is “highly improbable” at that meeting, since it expects price pressures to remain elevated following a hike in the price of heavily subsidised diesel in September.
Reinforcing the central bank’s expectations on inflation, the consumer price index rose an annual 9.75 per cent in October, a tad faster than 9.73 per cent rise a month ago, more government data showed on Monday.
October wholesale price index data, which the Reserve Bank of India gives more weight to in setting policy, is due to be released on Wednesday. A Reuters poll of economists showed wholesale price inflation was seen accelerating to 7.96 per cent, an 11month high.