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India's Industrial Output Growth Weakens
October 11, 2013, 12:05 p.m. ET
India August Industrial Output Growth Weakens to 0.6% - WSJ.com
October 11, 2013, 12:05 p.m. ET
NEW DELHIIndia's industrial output in August expanded at a much weaker pace than expected, aggravating worries for authorities struggling to reverse a slowdown in the South Asian economy.
The index of industrial production rose 0.6% from a year earlier, government data showed Friday. This was far worse than the median forecast for a 2.4% expansion in a poll of 15 economists by The Wall Street Journal and July's 2.8% increase.
The weak reading could puncture the claims of authorities that the economy is improving and growth would pick up in the second half of the fiscal year, or the October-March period.
The sluggish growth "provides evidence that economic activity remains weak, despite the robust expansion of merchandise exports in the just-concluded quarter," said Aditi Nayar, an economist at rating firm ICRA.
Thursday, Finance Minister P. Chidambaram, who is in the U.S. to woo investors alongside attending the annual meetings of the World Bank and International Monetary Fund, said he believed India's economy would expand possibly closer to 5.5% this fiscal year.
He said improved prospects for farm outputon the back of more-than-usual rainfalland the numerous steps taken by the government over the past yearsuch as easing foreign investment restrictions, fast-tracking industrial projectswould help boost growth.
"I know that the world economic outlook report [by the IMF] does not share my optimism, but I may tell you that we do not share their pessimism," he said at an event, according to a statement released by India's finance ministry Friday.
Earlier this week, the IMF downgraded its forecast on India's growth this fiscal year to 3.8% from 5.6% based on market prices. At factor-cost, which is most widely used in the country, it predicted 4.25% growth, much below Mr. Chidambaram's projection.
The IMF isn't the only one to have presented a gloomy outlook on India's economy. Last week, the Asian Development Bank slashed its growth forecast of India to 4.7% from 6.0%.
That said, recent economic data have given hope of some improvement. Data issued Wednesday showed India's exports grew at a double-digit rate for the third successive month in September. Economists say exports usually have a significant bearing on industrial activity and the sustained increase could point toward a recovery.
However, Friday's data would dash some of those hopes.
"It [the data] is disappointing," said Nitesh Ranjan, an economist at Union Bank of India. "The little bit strength that we had seen in recent other indicators is negated by this number," he added.
Mr. Ranjan said the government will have to do more to ensure industrial projects held up because of delays in the grant of government approvals are fast-tracked in order to revive investments.
Indian industry has been struggling due to weakening demand amid a wider economic slowdown locally and overseas. Shabby infrastructure, such as potholed roads, crowded ports and airports, has also hampered business expansion as have high interest rates driven by the central bank's efforts to control inflation.
The industrial slowdown dragged economic growth, which slipped to a decade-low rate of 5.0% in the last fiscal year. The economy lost further momentum in the three months to June, expanding at an even slower pace of 4.4%.
Friday's data show manufacturing output, which has a 75% weight in the index, declined 0.1% from a year earlier in August. While mining output fell 0.2%, electricity production was buoyant, showing a 7.2% increase.
India August Industrial Output Growth Weakens to 0.6% - WSJ.com
