India output shrinks by most in 16 years

[Naveed Yaseen]

NEW DELHI: India’s industrial output shrank by the most in 16 years in March, data showed on Tuesday, underscoring the economic challenges facing the winners of general elections ending this week.

Industrial production in Asia’s third-largest economy fell by a sharper-than-expected 2.3 per cent compared with a 5.5 per cent rise during the same month in 2008, according to government figures.

“It was the worst drop in at least 16 years, said Nikhilesh Bhattacharyya, economist at Moody’s Economy.com. Bhattacharyya blamed the poor performance on the manufacturing sector which “has been bleeding jobs in recent months, with tight credit conditions and collapsing demand at home and abroad.”

Analysts were widely expecting a 0.6 per cent year-on-year decline but the fall was nearly four times their estimates.

“Indian industrial production remains in the doldrums,” said HSBC economist Robert Prior-Wandesforde. Industrial output expanded by 2.4 per cent in the last fiscal year which ended in March, down from 8.5 per cent a year earlier.

The decline underlined the economic problems facing the new government which emerges from the elections, the results of which will be known next Saturday.

Whatever the party make-up of the new administration, the problems it will face are already clear and acute.

A raft of data has shown the economy cooling with Prime Minister Manmohan Singh forecasting growth for the fiscal year just ended in March of 6.5 per cent, the slowest in six years, after expansion of nine per cent the previous year.

The central bank expects the economy to lose more traction next year, slowing to around 5.5 per cent. Even that would be strong by world standards but it’s far below levels needed to raise the living standards of India’s impoverished millions.

“Both investment and consumption need a big push if the (current) growth trajectory is to be altered,” said Harsh Pati Singhania, president of the Federation of Indian Chambers of Commerce and Industry. “The economy is yet to get out of the slowdown mode,” he said.

But the new government’s room to fix problems will be sharply curbed by previous lavish spending on a national jobs scheme, farm loan waivers, civil service wage hikes, tax cuts to spur growth and other steps.

India’s fiscal deficit for the last financial year was six per cent of GDP, more than double the target, and 11 per cent if the states’ deficits are included, making it among the world’s highest.

Still many analysts say the economy should start picking up in the second half of the financial year and a more solid recovery will take hold in 2010-11 thanks to aggressive interest rate cuts and government stimulus moves during recent months.

“While April-June should see a bottoming out in industrial production, the economic recovery is unlikely to begin in earnest until the July-September quarter,” said HSBC’s Prior-Wandesforde.

http://www.thenews.com.pk/daily_detail.asp?id=177220