New Delhi - India's industrial
production contracted by a shock 1.8% from a year earlier in June, as
manufacturing output shrank in Asia's third-largest economy, official
figures showed on Thursday,
The data underscored the massive job
ahead for India's new pro-market finance minister, P. Chidamabaram,
who pledged this week to "restart the growth engine" of
India's sharply slowing economy.
Manufacturing output, which accounts
for three-quarters of the index of industrial production, fell 3.2%
from a year earlier in June, according to the government data.
Manufacturing has been undermined by
high interest rates to combat stubbornly high inflation, falling
business confidence and Europe's debt crisis which has hit exports.
The 1.8% shrinkage in output by
factories, mines and utilities in June was the third contraction in
four months and followed a revised 2.5% production rise in May.
The industrial output reading was far
below analysts' expectations, which were for an increase of 0.80%,
according to a Dow Jones Newswires poll.
The weak performance is likely to pile
pressure on the central bank to ease interest rates to spur growth.
The bank has said it wants inflation to
come down before cutting borrowing costs, but Chidambaram has already
indicated he wants lower rates, saying "sometimes it is
necessary to take carefully calibrated risks".
The weak numbers come as the
left-leaning Congress-led government is under pressure over a string
of graft scandals and its attempts to liberalise the still
inward-looking economy to spur growth have led to gridlock in
India's once-booming economy grew just
5.3% between January and March, its slowest annual quarterly
expansion in nine years.
Capital goods output, an important
investment indicator, slid 27.9% in June from a year earlier.
Goldman Sachs economist Tushar Poddar,
who recently pared his full fiscal year growth forecast to 5.7% in
contrast to the central bank's expectation of 6.5% expansion, saw
more tough times ahead.
"Weak monsoons are also likely to
impact rural consumption demand and exacerbate weakness in investment
demand," Poddar said ahead of the data.
Citibank has said if a nationwide
drought is declared, which would be the country's third in a decade,
growth could be as low as 4.9% as hundreds of millions of farmers
depend on the annual rains for their income.
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