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March factory output a dampener

New Delhi, May 12: The economy showed little signs of improvement with factory output contracting for the sixth consecutive month in March by 0.5 per cent.

The output, as measured by the index of industrial production (IIP), contracted 0.1 per cent in 2013-14 compared with an expansion of 1.1 per cent in 2012-13. Industrial production grew 3.5 per cent in March 2013.

Meanwhile, costlier vegetables, fruits and milk have pushed up retail inflation to a three-month high of 8.59 per cent in April.

Coinciding with the final day of the five-week general elections, the twin data underscored the challenges awaiting a new government.

The stubborn slow-to-shrinking industrial growth is widely expected to force the new government to target an early revival through a slew of measures, which could include faster clearances, lower interest rates and relaxed labour laws.

“Investment activity remains sluggish with no visible signs of a broad-based turnaround so far in the first quarter of the current fiscal. A pick-up in investment activity is unlikely to take root until the second half of 2014-15. Moreover, with a repo rate cut highly improbable in 2014, interest rates would remain sticky and limit the improvement in consumption sentiments,” Aditi Nayar, senior economist with rating agency ICRA, said.

Manufacturing, which constitutes over 75 per cent of the index, dipped 1.2 per cent in March against a growth of 4.3 per cent a year earlier.

Mining declined 0.4 per cent in March against a fall of 2.1 per cent a year earlier. Capital goods, a barometer of demand, contracted 12.5 per cent in March.

Slowing demand, high borrowing costs and stalled projects on account of delays in securing government approvals have contributed to the sharpest economic downturn in a decade.

India’s annual GDP growth has nearly halved to under 5 per cent from a dizzying 9 per cent in the decade gone by.

The slowdown, however, has not cooled inflation, squeezing the space for the Reserve Bank of India to ease interest rates in its monetary policy review in June.

According to N. R. Bhanumurthy of the National Institute of Public Finance and Policy, “The new government and the RBI should make efforts to contain inflationary pressure in the economy. Reduction in inflation is likely to result in interest rate cuts and a pick-up in industrial output.”

 
 
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