Source: The Economic Times, Nov 12, 2019
NEW DELHI: India’s industrial production shrank for the second consecutive month in September, its worst performance in the series that began April 2012, highlighting the persistent structural slowdown in the economy and firming up expectations of further monetary easing next month with scant signs of a turnaround.
As per the Index of Industrial Production (IIP), factory output contracted 4.3% in September, the lowest in almost eight years in this series, which began April 2012 (with 2011-12 as the base year) and the lowest since October 2011when compared with the earlier series with base year 2004-05. IIP had contracted 5% in October 2011.
The decline was steeper than the 1.4% reduction seen in August, suggesting that the economy may have slumped further in the second quarter of the current financial year. Industrial production grew 4.6% in September 2018.
Economists expect second-quarter growth — the GDP figure is to be released on November 29 — may be lower than the six-year low of 5% in the June quarter. The Reserve Bank of India (RBI) had said last month that growth may be marginally better at 5.3% in the July-September period.
“This is a weak phase in the economy and sentiments are not robust but it’s tough to say if the economy has bottomed out,” said IDFC First Bank chief economist Indranil Pan. The lender sees second-quarter growth at 4.9-5.1%.
The central bank has pared its FY20 annual growth forecast to 6.1% from 6.8% estimated earlier. The economy grew 6.8% in FY19.
Full year growth estimates
Economists’ estimates for the full year are generally more gloomy. Growth for the current fiscal year may dip to around 4.7%, dragged down by the industrial sector, said ICRA principal economist Aditi Nayar. Nomura cut its GDP forecast to 4.9% for FY20 from 5.7% earlier. Axis Bank chief economist Saugata Bhattacharya said, “Overall, Q2 GDP growth is likely to be weak and robust recovery will take some time.”
The RBI has cut interest rates by a cumulative 135 basis points this year and will review monetary policy early next month, with the announcement scheduled for December 5. One basis point is one-hundredth of a percentage point.
Last week, Moody’s Investor Service lowered its outlook on India’s sovereign rating (Baa2) to negative from stable, saying that the domestic economic downturn could be structural, as opposed to cyclical, implying that more policy changes were needed in order to revive growth.