Factory output falls to the lowest level in over 2 years

Apr 12 2014, 01:27 IST
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In the fourth quarter of FY14, the trade deficit stood at $28.6 billion against $29.9 billion in Q3. Reuters In the fourth quarter of FY14, the trade deficit stood at $28.6 billion against $29.9 billion in Q3. Reuters
SummaryContracting exports add to problem * Apr-Feb imports down 8.6%.

India’s industrial production dropped an annual 1.9% in February as manufacturing contracted 3.7%, the sharpest drop in 28 months, while exports tumbled 3.2% in March, recording its second straight month of contraction, official data released on Friday showed. Reflecting an absence of recovery in demand of both investment and consumption varieties, imports, which had been contracting since June and in double digits for the past six months, fell 2.1% in March and to a three-year low of $451 billion in FY14.

Coming on the back of a drop in the manufacturing PMI from the 10-month high of 52.5 in February to 51.3 last month and a second straight month of decline in the services PMI, Friday’s raft of data punctured the optimism of many that the Indian economy’s engine might have begun chugging along after a long, discomfiting lull.

The post-election government at the Centre will likely inherit an economy that hasn’t yet bottomed out, although things might look up before long. Rating agency Fitch, which on Friday affirmed India’s sovereign rating at “BBB-” with a stable outlook, said it expected the country’s economic growth to accelerate from 4.7% in FY14 to 5.5% this fiscal and 6% next year. It banked on “a gradual pick-up” in investment once the election uncertainty dissipated, thanks mainly to the clearances of close to 300 investment projects by the Cabinet Committee on Investment. “However, some of these projects may no longer be viable or may still face difficulties at the state level,” Fitch said, something that the new government to be sworn in by end-May will have to tackle with urgency.

Earlier this week, the International Monetary Fund had forecast India’s GDP growth to accelerate from 4.6% in FY14 to 5.4% in FY15 and further to 6.4% in FY16.

Helped by the decline in imports driven by low demand and a 40% fall in gold and silver imports (a five-year low), merchandise trade deficit narrowed 27.2% in FY14 to $138.6 billion, a three-year low.

In the fourth quarter of FY14, the trade deficit stood at $28.6 billion against $29.9 billion in Q3. These augured well for the current account, most said, although some analysts, pointing to a widening of the trade deficit in March to $10.5 billion from $8.1 billion in the previous month, said authorities might need to be cautious about withdrawing gold import curbs.

Crisil Research said: “The reduction in trade deficit in Q4

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