Expert views: industrial output shrinks 0.6 percent in December

MUMBAI Tue Feb 12, 2013 12:10pm IST

A worker cleans gear wheels used in conveyor belts at a small scale factory in Kolkata February 7, 2013. REUTERS/Rupak De Chowdhuri/Files

A worker cleans gear wheels used in conveyor belts at a small scale factory in Kolkata February 7, 2013.

Credit: Reuters/Rupak De Chowdhuri/Files

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MUMBAI (Reuters) - India's industrial production contracted an unexpected 0.6 percent in December from a year earlier weighed down by manufacturing, government data showed on Tuesday, extending a period of gloom in Asia's third largest economy.

(Read full story here)

Analysts polled by Reuters had expected output to grow 1.1 percent annually.

Separately, annual consumer price inflation (CPI) accelerated to 10.79 percent in January from the previous month, government data showed.

COMMENTARY

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"Putting together the auto sales number along with news flow from capital goods companies, things look bad on the growth front. The spending cuts by the government will also have some impact on GDP but that is a short-term pain. The crucial difference between other countries who have also taken up austerity measures is in India we have monetary space available."

SIDDHARTHA SANYAL, INDIA ECONOMIST, BARCLAYS CAPITAL, MUMBAI

"Given that the IIP is weak across the board and also that the November number has been revised sharply downwards, it seems that the change is statistical in nature, in the sense that there is some adjustment in the base year.

"But going ahead downside risks to growth exist due to the government cut in spending and this is pertinent more to the services sector where government spending has a big role. I think for RBI, WPI (wholesale price index) number and the trade numbers will be more crucial to decide on future rate cuts."

NITESH RANJAN, ECONOMIST, UNION BANK OF INDIA, MUMBAI

"CPI is a disappointing number but we have seen that food inflation has remained high even in the WPI. I do not expect pressures from the food side to ease anytime soon, so expect the CPI to remain high for some more time.

"The decline in IIP in the month of December, however, suggests that the CSO estimate on full-year growth may be right. This is a kind of pointer which shows that the investment slowdown is quite acute and we need to review various stalled projects.

"From the policy perspective, the RBI cut rates in January and the banking system has started responding to that cut. So we need to wait and watch how the pass-though happens going ahead as well. I think the RBI may not choose to cut rates in March and wait for the full-year policy in the next fiscal year to take a view on further cuts."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"IIP growth has been in negative zone in December on the back of continued weaknesses in investment and consumption demand as is reflected in the strongly negative growth in capital and consumer durable goods.

"Today's reading is supportive of the CSO estimate of 5 percent GDP growth for FY13. Addressing risks to growth will be the main priority for the RBI and the government in the coming months."

SHAKTI SATAPATHY, FIXED INCOME ANALYST, AK CAPITAL, MUMBAI

"The negative data is a bit surprise and is expected to be rate positive for forthcoming policy meet of RBI. Further the downward revision in the November data reiterates subdued investment sentiment. Although the sluggish IIP might prompt for a repo cut in the next policy meet, the rising CPI & underlying threat on the crude & food prices would leave a lesser room for further rate cuts in the next fiscal year."

ANJALI VERMA, ECONOMIST, PHILLIPCAPITAL, MUMBAI

"It is now an understood fact that the government's reform announcements are long-term positive. In the near term, the government needs to hurry up with project clearances to get industry back on track. However, I still think that 5.4 percent GDP growth for FY13 is feasible unless things worsen in the March quarter.

"I think the RBI's next move will be another 25 basis points easing in the repo rate in March or April."

JYOTINDER KAUR, ECONOMIST, HDFC BANK, MUMBAI

"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 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."

MARKET REACTION

* The benchmark 10-year bond yield rose 2 basis points to 7.88 percent following the higher CPI data.

* The partially convertible rupee extended fall to 54.00/01 per dollar from 53.88 before the IIP data.

* Sensex briefly turned negative. They were trading up 0.2 percent before the data.

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.

(Reporting by India Treasury, Equities and Markets teams; Editing by Ranjit Gangadharan)

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