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Shock fall in industry output, exports deepen India's economic gloom

Apr 11 2014, 20:40 IST
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Industrial output has fallen in four of the last five months. Reuters Industrial output has fallen in four of the last five months. Reuters
SummaryIndia's economic gloom deepened with a surprise contraction in industrial output.

India's economic gloom deepened on Friday with a surprise contraction in industrial output, a fall in exports and a jump in the trade deficit, underscoring the enormity of challenges awaiting a new government that takes over in May.

Economic growth in Asia's third largest economy has almost halved to below 5 percent in the past two years on weak investments and consumer demand, in the worst slowdown for the south Asian nation since the 1980s.

Friday's government data, which measures production at mines, utilities and factories, provided no relief.

A continuing slump in capital and consumer goods sectors resulted in a surprise 1.9 percent annual contraction in industrial production in February, which compares with analysts' median forecast of 0.9 percent growth.

Manufacturing fell 3.7 percent year-on-year in February. Industrial output has fallen in four of the last five months.

"Both consumer demand and investment conditions seem to be weakening, thereby further dampening the outlook for manufacturing," said Arbind Prasad, director general of FICCI, one of India's industry chambers.

"Revival of manufacturing growth requires some bold reforms in the area of the business regulatory environment which should be the focus and priority for the (new) government," he added.

In other data on Friday, merchandise exports fell for a second straight month in March, widening the trade deficit to a five-month high.

The trade gap in March widened to $10.51 billion, its highest since October 2013, data from the Ministry of Commerce and Industry showed on Friday. Overseas sales of Indian goods fell 3.15 percent from a year earlier to $29.58 billion in March.

Merchandise exports for the 2013/14 fiscal year, however, grew 3.98 percent on year to $312.36 billion. Together with an 8.11 percent decline in annual imports, that helped sharply narrow the country's full-year trade shortfall to $138.59 billion from $190.34 billion a year ago.

ELECTION PROMISE

The ruling Congress party's failure to revive the economy has turned the opposition Bharatiya Janata Party's pro-business leader Narendra Modi into the overwhelming favourite to head a new government after national elections which began this week.

Thanks to his success in expediting investment projects in the western Indian state of Gujarat, Indians hope the BJP leader will be able to reverse the slowdown in jobs and investment growth in a country with a rapidly growing young workforce.

Ratings agency Fitch, which affirmed India's sovereign credit ratings at 'BBB-' with a stable outlook on Friday, reckons its economic fortunes will remain uncertain until the elections are

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