No green shoots yet: Dec IIP declines, pressure likely on RBI
Task cut out for FM, RBI after December IIP print

Economy Feb 12, 2013

IIP contracts: High inflation destroying demand, say experts

India's industrial output in December contracted 0.6 percent, the government said on Tuesday, surprising expectations for a growth of 1.1 percent forecast in a Reuters poll.

Here is what experts have to say:

JYOTINDER KAUR, ECONOMIST, HDFC BANK, MUMBAI

Reuters

Reuters

"This is yet another indication that while things could have bottomed out, the past recovery is considerably far away. High inflation is impinging on purchasing power and so industrial growth is slowing, while the government is clamping down on expenditure which is certainly not helping growth. So all this is not a pretty picture. Despite incremental efforts we are still staring at weak growth print. We expect rate cut in March as growth is consistently surprising on the downside while pace of CPI (consumer price inflation) has stabilised."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI, MUMBAI

"What is clear is that any meaningful industrial recovery is eluding us. Demand destruction is far more well entrenched than we thought. This, with FY13 advance GDP estimates, clouds the outlook for FY14 growth. We now think that FY14 growth may be between 5-6 percent.

"We stick to our call that the RBI will lower the repo rate by 75 basis points in the rest of 2013."

BACKGROUND

- India's current account deficit is likely to reach a record high in the fiscal year that ends in March, the central bank governor warned, a gap which the bank said previously needed to shrink for it to cut interest rates further.

- The government is likely to borrow less in 2013/14 than in the current fiscal year because of its surplus cash balance, two government sources told Reuters, which could help bolster growth prospects by reducing borrowing costs for private investors and facilitating a pick-up in capital investments.

- Car sales fell an annual 12.5 percent in January, the third consecutive slide and the fifth in six months, an industry lobby group said on Monday, as sales of cars in a once-booming market head for their worst growth in nine years.

- Headline inflation likely eased again in January to its lowest level in over three years due to a smaller rise in prices for manufactured goods, a Reuters poll showed, but it will probably remain well above the Reserve Bank of India's perceived comfort zone of around 5 percent for a while, giving the central bank little room to ease monetary policy aggressively.

- India's slowest growth in a decade could be worse than anticipated, as preliminary data released on Thursday showed the economy set to have grown 5.0 percent in fiscal year ending next month, underscoring the urgent need for reforms to boost growth.

Reuters


Related Stories.