India's industrial output shrinks, trade gap widens

NEW DELHI Fri Jan 10, 2014 7:24pm IST

A labourer works inside a steel factory on the outskirts of Jammu January 2, 2014. REUTERS/Mukesh Gupta

A labourer works inside a steel factory on the outskirts of Jammu January 2, 2014.

Credit: Reuters/Mukesh Gupta

NEW DELHI (Reuters) - India's economic woes worsened on Friday with a surprise contraction in industrial production and a wider trade deficit, adding to troubles of the ruling alliance as it heads into a tough national election seeking a third term.

Production at factories, mines and utilities shrunk for the second straight month in November, by 2.1 percent, data from the Statistics Ministry showed, dragged down by a contraction in consumer goods output.

Analysts polled by Reuters had predicted output to grow 1.0 percent.

"The November industrial production figures continue to show that the Indian industrial sector remains in recession, with clear evidence that domestic consumption remains weak," wrote Rajiv Biswas, Asia-Pacific chief economist at His.

Meanwhile, the trade deficit widened to $10.14 billion last month from $9.22 billion in November on waning exports growth, data from the Trade Ministry showed on Friday.

Merchandise exports rose 3.49 percent year-on-year to $26.35 billion, slowing down from a 5.86 percent pace in November.

The second successive fall in the output and slowing exports growth will likely dampen hopes for a rebound in Asia's third-largest economy that is struggling to come out of a situation that some analysts define as stagflationary.

For the past four quarters, economic growth has been stuck below 5 percent while prices are rising.

The ruling Congress party is desperately seeking a rebound to help win back voters in the election expected between April and May. Opposition prime ministerial candidate Narendra Modi has made the depressed economy a central plank of his campaign.

Strong exports along with a robust farm output were expected to usher in an economic revival, beginning in the October-December quarter.

The latest data may make investors more wary of committing fresh investments in an economy that recorded 9 percent annual expansion until two years back and was widely expected to be one of the main drivers of the global economic recovery.

Looming elections as well as lingering uncertainty over the future course of the U.S. Federal Reserve's monetary policy, which has flooded emerging markets including India with cheap money, have already turned many investors cautious.

The latest industrial data shows no departure from a torrid narrative of weak investments and flagging consumer demand.

The production of consumer goods, a proxy for consumer demand, fell an annual 8.7 percent in November. The sector has grown just once in last seven months.

Capital goods production, a barometer for investments in the economy, grew just 0.3 percent in November from a year earlier.

(Reporting by Rajesh Kumar Singh and Manoj Kumar; Editing by Alison Williams)

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