Industrial Output in India Surprising Shrinks 22

Industrial Output in India Surprisingly Shrinks 2.2%

India's economy has been struggling under high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a string of graft scandals that have virtually paralyzed policy making.

NEW DELHI -- Adding to the gloom shrouding Asia's third-largest economy, India's industrial output shrank by an unexpectedly large 2.2% in June, data showed Monday.

The slide in output by India's factories, mines and utilities was higher than market expectations of around a 1.2% fall in June year-on-year.

"Weak domestic demand is weighing on manufacturing production," Moody's economist Glenn Levine said ahead of the figures, adding that "this is unlikely to improve in the second half."

The figures were more grim reading for Prime Minister Manmohan Singh's Congress-led government, which is desperately hoping for an economic rebound before general elections due in the first half of 2014.

Despite the economic weakness, India's central bank is ill-placed to cut interest rates to kick-start the economy with the rupee flirting with record lows.

While the bank has cut long-term rates three times since the start of 2013 following an aggressive hiking spree, credit costs have been pushed up lately by bank moves to hike short-term rates to persuade investors to keep their money in India and put a floor under the rupee's decline.

India's economy has been struggling under high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a string of graft scandals that have virtually paralyzed policy making.

Copyright Agence France-Presse, 2013

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