The bleak Index of Industrial Production (IIP) data released on Thursday came on top of a series of dismal data consumer inflation inched up to 11.24% in November, compared with 10.17% a month before, export growth slowed to a five-month low in November and core sector output too shrank in October.
The slowing of exports growth to 5.86% in November and the recent deceleration in import growth (minus 16% in the three months to November) had earlier convinced many that a turnaround for the economy was not in the offing. Double-digit growth in exports from July to October, aided by the rupee's fall, had moderated the adverse impact on demand from subdued domestic consumption and investment. With growth in exports tapering and domestic demand weak, there is little hope for the economy to look up soon.
The government is planning major cutbacks in spending to meet the fiscal deficit target. With little signs of a front-loading of expenditure (particularly to the June quarter) boosting demand significantly and analysts discounting the impact of the projects fast-tracked on investment, economists said a revival would be seen no earlier than the second quarter of next fiscal. Even this, pertinently, would hinge on the ability of the post-election government at the Centre to inspire investor confidence.
"One thing is very clear. There is no decisive economic recovery in sight. The trend of economic growth declining and inflation remaining high is not a good sign," said DK Joshi, chief economist, Crisil. Crisil has forecast an economic growth of 4.8% for the current fiscal. On Wednesday, Reserve Bank of India governor Raghuram Rajan said that some glimmerings of a revival were about to be seen, while sticking to an earlier growth forecast of 5%.
India's GDP grew 4.6% in the first half of this fiscal 4.8% in the second quarter and 4.4% in the first quarter.
What's worrying is that a pick-up seen for a couple of months to September-end in coal, electricity, etc, seems to have been short-lived. I think investments will not pick in the short term. The improvement in the core sector has proved to be temporary too. GDP growth in FY14 is likely to be sub-5%, said Mathew Joseph of FORE School of Economics.
With the focus on inflation control by the RBI and now the government, analysts don't see any loosening of the benchmark lending rate in the monetary policy review meeting of the central bank next week. The surge in consumer inflation last month, led by a 14.72% rise in the food and beverage prices, made the task for the RBI even more complicated. Indranil Pan, chief economist, Kotak Mahindra Bank, said inflation at this point in time is driven by food prices and that core inflation is falling in line with the falling growth. He said the economy is likely to grow at 4.6% this fiscal.
Industrial output grew by an impressive 8.4% in October last year.
The data showed growth in capital goods output a gauge for fixed corporate investment remained tepid at 2.3%, compared with 7% a year earlier, reflecting continued lacklustre investment sentiment. The sector has now witnessed contraction in 14 of the 19 months through October. Even the modest uptick in the second quarter in gross fixed capital formation, which rose 2.6% in the second quarter from a year earlier and gained 5% compared with the June quarter, seemed coming largely from pipeline investments and not fresh ones.
Earlier, economic affairs secretary Arvind Mayaram said the Cabinet Committee on Investments had, between January and April, given approvals to projects that pointed at investments of $27 billion, which would have a mobilisation time of six to seven months.
The manufacturing sector, which accounts for roughly 75% of industrial output, contracted by 2% in October due to an unfavourable base (the sector grew 9.9% in October last year). Mining contracted by 3.5% in October, compared with -0.2% a year before, while the electricity segment grew just 1.3%, against 5.5% during the same month last year.
Seeking "accommodative" monetary policy to revive demand, CII director-general Chandrajit Banerjee said: "Simultaneously, efforts should be made to ensure that the structural bottlenecks and other hurdles which constrain investment even after the project has been approved by CCI is checked so that the actual impact of project clearance is seen on the ground."
Ficci president Naina Lal Kidwai said: "The manufacturing growth is significantly affected by the de-growth in the mining sector as sectors like metals that are dependent on minerals and have substantive weight in the index are pulling down the growth in manufacturing.
Ficci's latest quarterly survey for the third quarter of 2013-14 indicates subdued manufacturing activity with rising concerns over the cost of credit by manufacturers, compared with previous surveys. Notably, the proportion of respondents availing credit above 12% per annum rose significantly in the current survey to 58% as compared to 42% in the previous survey, Kidwai said.