India Industrial Output Grows Just 0.1% in July

The once-booming economy has been hit by a combination of high interest rates, Europe's debt crisis gouging exports, stalled government reforms and sluggish investment.

India's industrial output inched up by a meager 0.1% in July from a year earlier, data showed on Wednesday, piling new pressure on policymakers to spur Asia's third-largest economy.

The once-booming economy has been hit by a combination of high interest rates, Europe's debt crisis gouging exports, stalled government reforms and sluggish investment.

"It is difficult to be optimistic" that industrial output will show a "meaningful recovery" until domestic interest rates come down and world trade picks up, said Credit Suisse economist Robert Prior-Wandesforde.

The scant 0.1% growth in July's manufacturing, mining and electricity output was better than June's sharp 1.8% contraction. But it missed market forecasts of a 0.5% increase and was far below the 3.7% rise logged in July 2011, prompting alarm from business leaders who called for coordinated monetary and fiscal intervention.

Manufacturing production, accounting for three-quarters of the Index of Industrial Production, shrank 0.2% in July while capital goods output such as heavy machinery -- a key barometer -- contracted five percent.

Confederation of Indian Industry's director general Chandrajit Banerjee said implementation of long-stalled measures to further open up the economy to foreign investment were "imperative."

Rate cuts are long overdue and "the economy is in need of sentiment boosters", said Banerjee, adding that "investments have dried up."

But analysts said the output data was unlikely to push India's hawkish central bank to lower rates at Monday's scheduled monetary policy meeting with inflation still at elevated levels. Other central banks globally have been easing rates to revive their troubled economies.

But India's bank has kept borrowing costs on hold since April -- when it cut them for the first time in three years -- insisting inflation must recede. Analysts expect figures to be released Friday for August to show inflation nudged above seven percent after slowing to 6.87% in July.

The bank's "preoccupation with high inflation will limit further policy rate cuts in the near term," said IHS Global Insight economist Jyoti Narasimhan.

India's pro-business finance minister P. Chidambaram has pledged to restart the nation's "growth engine." But analysts are skeptical about what he can achieve with the Congress-led government mired in graft scandals that have left it unable to push through politically difficult liberalisation reforms.

The economy grew just 5.5% in the quarter between March and June -- a three-year low.

The government sees growth of around 6.5% for the year to March 2013 but many economists expect expansion of 5% to 5.5% -- far below the heady near double-digit levels of the past decade.

-Penny MacRae, AFP

Copyright Agence France-Presse, 2012

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