Factory output, trade data point to continued weakness

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Industrial production fell 1.6% in October Industrial production fell 1.6% in October
SummaryIndia’s industrial production fell by an annual 2.1% in November 2013

The Cabinet Committee on Investments boasts that it has removed the roadblocks for Rs 3.6 lakh crore worth projects since last January and large chunks of this money have already been spent, but even the latest industrial production/trade data barely corroborate that optimism. Reflecting continued weakness in demand, India’s industrial production fell by an annual 2.1% in November 2013 despite a relatively favourable base, owing primarily to a big slump in manufacturing, which accounts for three-fourths of the relevant index.

The much-lower-than-expected headline Index of Industrial Production (IIP) figure, put out on Friday, was complemented by merchandise trade data that revealed imports continued to drop at a brisk pace — by 15.2% in December to $36.5 billion. Industrial production fell 1.6% in October — in fact, it reported negative growth in four out of the eights months from April to November this fiscal.

The manufacturing sector, hit by a tapering of the export demand besides torpid domestic consumption and input constraints, contracted by 3.5% in November. Imports fell even more steeply (22.9%) in the case of non-oil items in December, and the decline was manifest in the imports of industrial inputs and capital goods as well.

The continued moderation in trade deficit so far this fiscal, however, augurs well for the country’s current account deficit, which, helped by the curbs on gold imports besides the overall import slowdown, shrank to 1.2% of GDP in July-September quarter. The trade deficit widened marginally to $10.14 billion in December compared with $9.22 billion in November.

The coal allocation scam, the restrictive “go, no-go” policy by the environment ministry and the Supreme Court crackdown on illegal iron ore mining have taken a heavy toll on Indian mining. Despite some efforts like fuel supply agreements (FSAs) to boost Coal India’s production and the fillip being given to captive coal policy, the mining sector has remained in a shambles for three years in a row. As per the IIP data, in 25 out of 32 months since the start of FY12 to November 2013, year-on-year contraction was reported in mining output.

“Industrial growth is likely to remain weak for the rest of 2013-14 due to infrastructure and input constraints, and weak domestic demand,” a Crisil report said. “Even though the mining ban has been lifted in Karnataka, revival in mining output will be slow as it will take time for firms to obtain relevant clearances and ramp

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