India’s industrial growth slows; latest sign of weakness

Monday, 13 June 2011 00:00 - - {{hitsCtrl.values.hits}}

(Reuters) : India’s industrial output growth dipped in April, the latest sign that rising cost of credit and inflation are acting as brakes on the economy, which may compel the Reserve Bank to pull back from its aggressive monetary policy tightening.

The annual 6.3 percent expansion in production at factories, mines and utilities compares with 8.8 percent in March and was the slowest in three months. Friday’s data was the first of a new series with a base year of 2004-05, new components and weightings. Under the old series, annual industrial output growth in April was 4.4 percent, lower than an upwardly revised 7.8 percent growth in March and below a median forecast of 5.5 percent expansion in a Reuters poll.

The industrial output data adds to evidence pointing to a slowdown in Asia’s third largest economy, which grew at an unexpectedly modest 7.8 percent in the three months through March, its slowest in five quarters. Growth in big emerging economies like India and China is cooling at the same time recoveries are stalling in the United States and Europe.

“While the market has two sets of data points to look at, there is no change in the industrial slowdown story,” said Anubhuti Sahay, an economist at Standard Chartered in Mumbai.

Both the old and new data series showed a slowdown in manufacturing, which contributes about 80 percent to overall industrial output. Under the new series, manufacturing grew an annual 6.9 percent compared with 10.4 percent a month earlier, while under the old series growth slowed to 4.4 percent from 8.4 percent in March.

A moderation in India’s manufacturing PMI in May on weak demand suggests expansion in the sector will remain subdued in coming months.

“Higher borrowing costs, tighter credit-vigilance and rising input prices are likely to hinder production activity going forward,” said Radhika Rao, an economist at Forecast PTE in Singapore.

Even as India’s economy cools, elevated inflation is expected to keep the Reserve Bank hawkish. Most economists still expect the RBI to raise its main policy rate by 25 basis points at its policy review next week, after it raised rates by a bigger-than-expected 50 basis points last month.