Market Commentary and Intraday News
India's June industrial output falls 1.8 percent
283 days ago
By ERIKA KINETZ
AP Business Writer
(AP:MUMBAI, India) India's industrial output fell a worse-than-expected 1.8 percent in June, its third fall in four months, as slumping manufacturing and investment darken the outlook for Asia's third-largest economy.
India's growth is at its lowest in almost a decade and economists are gradually reaching the conclusion that things are worse than they thought. The central bank recently cut its growth forecast for the year ending March 2013 to 6.5 percent, and many private sector economists are saying that the economy won't even attain 6 percent growth.
Confidence has been decimated by New Delhi's failure to unblock bottlenecks in crucial sectors like land, power and food, even as it pours money into fertilizer and fuel subsidies, widening the fiscal deficit.
Now nature is adding to India's woes, with the country expected to at least 10 percent less rain this year than normal during the June-to-September monsoon. That is a devastating blow for the hundreds of millions of Indians who work the land, most of which is not irrigated despite decades of government effort to drought-proof Indian farms. The shortfall is also expected to worsen food inflation and drive down rural demand.
Power outages that affected over 600 million people last week showcased the cost of weak governance. Policy flip-flops and shifting tax laws have also spooked investors, both at home and abroad. The central bank is locked in a game of nerves with New Delhi, having twice declined to cut rates to give the economy a kick, saying that monetary policy can't replace substantive policy reform.
Thursday brought another slew of bad news. It emerged that India's top carmaker, Tata Motors, is thriving only because it is able to sell lots of British luxury cars in China. The state-run Indian Oil Corporation topped this quarter's losers, posting a $4.1 billion quarterly loss Thursday because the government failed to compensate it for selling fuel below cost as it struggled to buy crude with a falling Indian rupee.
Industrial production fell because of slowing manufacturing, government data showed Thursday. Production of capital goods _ a sign of investment in things like machinery _ fell a worrying 27.9 percent.
Chandrajit Banerjee, director general of the Confederation of Indian Industry said the slowdown was "a cause for serious concern."
"Any further decline in GDP growth will have a deleterious effect on employment and on consumer demand," he said in an email.
New Delhi has embarked on a positivity campaign, but whether it will be able to overcome internal divisions and bring its fractious coalition partners into line remains to be seen.
In his first speech as finance minister Monday, Harvard graduate Palaniappan Chidambaram pledged to reign in the fiscal deficit and to review a retroactive tax proposal that alarmed investors, which was put in place by his predecessor Pranab Mukherjee. Mukherjee now holds the largely ceremonial presidency. Chidambaram has twice led the finance ministry, most recently from 2004-2008, when investment poured into India and the economy grew around 8 percent annually.
Two developments this week could also help ease power supply shortages. Coal India, the government behemoth that has a near-monopoly on coal mining, agreed to accept higher fines for failing to deliver on coal supply contracts. The tiny penalty Coal India initially chose to levy on itself _ 0.01 percent of the value of the shortfall _ was seen by some analysts as an embarrassing show of weakness for the prime minister, who had pressed to improve supply.
The oil minister on Wednesday said he would do all he could to help Reliance Industries boost production at the country's largest known gas reserves, where output has fallen to a third of anticipated levels. That's an apparent turnaround for the ministry, which has been fighting over cost recovery issues with Reliance and blocked project approvals.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.