Industrial output shrinks 1.9%

Exports fall for second succesive month in March; Fitch says election results key to turnaround

India’s industrial output fell by 1.9% in February to a nine-month low and trade deficit widened to a five-month high of $10.5 billion, while exports fell for a second consecutive month in March. Two sets of data released on Friday were a telling reflection of the daunting task ahead of the next government to turn the economy around.

Manufacturing output, which accounts for more than 5% of India’s industrial sector, contracted by 3.7% in February.

Capital goods output—a proxy for investment activity— contracted 17.4%, indicating how companies are not adding capacity, reeling under high costs and weak demand.

In a separate report, global rating agency Fitch forecast that Indian economy could expand by 5.5% in 2014-15 and 6% a year later, affirming the country’s rating at ` BBB- with a stable outlook, indicating low default risk.

It projected that India’s gross domestic product (GDP) will expand by 4.7%, lower than the government’s official estimates of 4.9%.

It, however cautioned that “the course of the Indian economy is uncertain” in the light of the on-going Parliamentary elections. Election results will be out on May 16.

“Once the next coalition starts implementing its economic policies, it will become clearer whether the economy can return to a higher sustainable growth path or whether it remains stuck at current levels,” Fitch said.

India’s merchandise exports fell 3.15% in March, contracting for the second successive month as outward shipments for 2013-14 was valued at $312 billion, short of the $325 billion target.

“Slowdown in manufacturing, liquidity crunch, currency appreciation, coupled with depreciating currency of few of our trading partners, softening of metal and commodity prices and uncertainty in few regions of the world are prime reasons for the slowdown,” Federation of India Export Organisations president Rafeeque Ahmed said.

Despite the rise in trade gap in March, a 40% fall in gold and silver imports over the last seven months has helped lower the fullyear trade deficit, softening the pressure on the current account balance that is likely to be below $35 billion (about 2% of GDP) from a record $88 billion last year.