India Industrial Output Shrinks for 3rd Month in a Row

India Industrial Output Shrinks for 3rd Month in a Row

Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by 1.6% in December from a year earlier.

NEW DELHI -- India's industrial output shrank by 0.6% in December in the third straight monthly contraction, data showed Wednesday, piling pressure on the government to spur the economy before elections.

The year-on-year output decline reported by the statistics ministry came amid stumbling consumer demand in the face of persistently elevated interest rates to curb stubborn inflation.

December's production was slightly better than the previous month's revised 1.3% contraction and exceeded analysts' expectations of a one-percent fall.

But it was still depressing reading for the scandal-plagued Congress government of Prime Minister Manmohan Singh, which opinion polls suggest is headed for a crushing defeat in the general election due by May.

Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by 1.6% in December from a year earlier.

Capital goods output such as factory machinery, a harbinger of investment intentions, contracted three percent. Consumer goods production shrank an even deeper 5.3%, reflecting stuttering household spending.

India's nearly $2-trillion economy is on track for a second straight year of below-5% growth. The government has forecast 4.9% expansion in the current financial year to March 2014 after the economy grew by 4.5% the previous year, the most sluggish pace in a decade.

But many private economists believe the economy will expand in the low four-percent range, a far cry from near-double digit growth in boom times. Manufacturing has been lackluster as companies delay investment, discouraged by high interest rates and red tape in clearing industrial projects. Many firms also are waiting to see the shape of the new government before committing investment funds.

But Moody's Investors Service, the global rating agency, said even the election of a strong coalition "would not act as a near-term game changer for Indian creditworthiness."

India has been struggling to avert a downgrade to so-called "junk" investment status as growth totters.

The rupee has tumbled sharply against the dollar in the past year as economic optimism has faded.

The government will table an interim budget next Monday to cover spending in coming months, but the next elected administration will present the regular full-year budget.

Finance Minister P. Chidambaram may seek to cut manufacturing duties to spur industry in the budget while hewing to the government's "red line" fiscal deficit target of 4.8% of gross domestic product, analysts say.

In the budget Wednesday for India's rundown railways, traditionally presented before the main budget, the government kept fares on hold in a voter-pleasing effort and announced more than 70 new trains.

-Penelope Macrae, AFP

Copyright Agence France-Presse, 2014

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