India’s industrial output shrank by a shock 1.6 percent in May from a year ago, data showed Friday, adding to mounting gloom about Asia’s third-largest economy.
The contraction in output by factories, mines and utilities was far below market forecasts of a 1.5-percent rise while in another blow, April’s industrial output growth was revised to 1.8 percent from 2.8 percent expansion earlier.
“Industrial recovery is not yet in sight — this is definitely a surprise on the downside,” D.K. Joshi, chief economist of India’s leading credit rating agency Crisil, told AFP.
The figures marked more grim reading for Prime Minister Manmohan Singh’s Congress-led government which is desperately hoping for an economic rebound before elections due in the first half of 2014.
“Industry has slipped into a serious crisis,” said business leader Rajkumar Dhoot, as the data showed manufacturing, which accounts for three-quarters of the Index of Industrial Production, had slumped by 2.0 percent in May.
Dhoot, chief of the Associated Chambers of Commerce and Industry, predicted “large-scale job losses” in the country of 1.2 billion people and pointed to production shutdowns already announced by the once-booming car sector.
Despite the weakness, the central bank is ill-placed to cut interest rates to kickstart the economy with the rupee near lifetime lows and separate data Friday showing retail price inflation climbing to 10.13 percent in June from 9.65 percent in May.
“For any policymaker, it is a very challenging time. You have urgent situations over the rupee, inflation and now manufacturing,” Joshi said.
“There is no magic wand except that the government must start implementing some of the economic reforms it has been promising,” he said.
While the bank has cut rates three times since the start of 2013 following an aggressive hiking spree, borrowing costs remain high.
The disappointing data comes as Finance Minister P. Chidambaram is in the United States this week on his second trip in three months to woo foreign investment — seen as key to strengthening the currency and spurring growth.
But he is seen as hampered by political opposition at home to more steps to prise open India’s still heavily state-dominated economy and investor concerns about widespread corruption.
India’s economy has been struggling under high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a string of graft scandals.
The government has forecast the economy will grow by at least six percent in the financial year that began April 1, after expanding by five percent last year — its slowest pace in a decade.
But private economists have been reducing their forecasts in the past few months with most seeing growth in the five-to-six percent range.
In one piece of positive news out of Friday’s string of downbeat data, June’s trade deficit narrowed from the previous month as gold imports slid in response to government duty hikes to curb consumer appetite for the precious metal.
The merchandise trade gap fell to $12.2 billion in June from $20.1 billion in May, easing market worries about India’s gaping current account deficit — the broadest measure of trade.
Oil imports also fell to $12.7 billion from $15 billion in May. Oil and gold imports are the biggest contributors to the current account deficit. But despite a sharply weaker currency, June exports fell 4.6 percent to $23.79 billion.
And underscoring weak consumer demand, car sales slid nine percent in June from a year earlier, marking a record eighth straight month of decline, other figures showed, and prompting industry calls for a government stimulus package.
“This is certainly the worst period I have seen in a long time,” R.C. Bhargava, chairman of Japanese-controlled Maruti Suzuki, the country’s largest carmaker, said in an interview published Friday.