Indian data to be released in the coming week is likely to show factory output growth sank to a six-month low in April, dragged by sluggish infrastructure activity and weak exports, while consumer inflation rose slightly in May, a Reuters poll found.
A weak output performance would reinforce doubts over the health of the economy, which also faces prospects of a weak monsoon hobbling both farm output and demand in rural areas, where most Indians live.
To support the economy, the central bank cut interest rates last week and reiterated its mistrust of a new way used to measure gross domestic product that shows India among the world’s fastest growing economies.
The poll of 28 economists predicted India’s industrial production (IIP) increased 1.6 per cent year-on-year in April, slowing from 2.1 per cent growth in March.
“Economic activity remained subdued in April due to lukewarm domestic demand, declining exports and poor infrastructure growth,” said Bharti Bhargava, economist at 4CAST.
Annual infrastructure output, which accounts for over a third of overall factory activity, contracted in April for the second month in a row, data showed last week.
Lacklustre global demand, particularly from oil exporting economies hit by the sharp slump in global crude prices, has dented the inflow of new orders.
Indeed, exports sank for a fifth straight month in April, 14 per cent down on a year earlier.
The poll also suggested consumer inflation rose marginally to 5.0 per cent in May, from April’s 4.87 percent on slightly higher energy and food costs.
“May consumer inflation probably inched up a little as the recent hike in the retail price of fuel pulled up transportation and communication costs,” said Devika Mehndiratta, senior economist at ANZ Bank.
While inflation is expected to have risen only slightly in May, economists said weaker-than-normal monsoon rains and resulting higher food prices could push inflation up sharply in coming months.
4CAST’s Bhargava said monsoon rains would play an important role in deciding the RBI’s policy.
“The central bank has left the door open for more rate cuts this fiscal year, contingent on the government’s reaction even if rainfall is weaker than normal.”
At its June 2 meeting, RBI Governor Raghuram Rajan indicated future rate cuts would depend on how the monsoon season pans out and what the government does to ease pressure on food prices.
Predictions for wholesale price inflation suggested prices fell 2.5 per cent annually.