new Delhi June 12, 2012, 13:47 IST
new Delhi June 12, 2012, 13:47 IST
new Delhi 06 12, 2012, 13:50 IST
India's industrial output growth flatlined in April, piling pressure on the RBI to cut rates and highlighting economic fragility after a warning that the BRIC nation's credit could be downgraded to junk because of political inaction.
Standard & Poor's rating agency warned on Monday that India was straying from the path of economic liberalisation and could become the first of the BRIC nations - Brazil, Russia, India and China - to lose its investment grade credit rating.
High inflation and interest rates, a lack of government initiative and the euro zone debt crisis have weighed on Asia's third-biggest economy for more than a year. Economic growth hit its weakest pace in nine years in the quarter ending in March.
"The S&P report is based on a number of fears, which are, in my opinion, unfounded," the prime minister's chief economic advisor, C. Rangarajan, told NDTV Profit.
Tuesday's data showed industrial production rose just 0.1 percent in April from a year earlier, lower than a forecast in a Reuters poll of a 1.7 percent increase and bringing renewed calls from economists and industry for the Reserve Bank of India to cut rates at a policy meeting scheduled for June 18.
"The data clearly points to industrial growth being extremely weak, and it is in clear need of monetary as well as fiscal support," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
A delegation of industrialists met Prime Minister Manmohan Singh to discuss the industrial slowdown, a spokesman for the Associated Chambers of Commerce and Industry of India said. The spokesman did not say what was discussed but the group planned a news conference later in the day.
Expectations of lower interest rates will be further moulded on Thursday by the release of benchmark wholesale inflation data for May, which a Reuters poll forecast to have reached a 2012 high of 7.6 percent.
Industrial output fell in March from a year earlier by 3.2 percent, revised figures showed, with capital goods such as factory machinery contracting 16 percent in April.
In the last eight months this key indicator of investment in the economy has grown only once.
Output in the mining sector, another key economic driver that has suffered from regulatory pressures, fell 3.1 percent year on year in April, the second consecutive monthly decline.
India's lackluster performance, along with Brazil's woes, has tarnished the BRIC nations' reputation as drivers of growth in the global economy.
Jim O'Neill, the Goldman Sachs economist who first used the term to describe the world's leading emerging economies, wrote in a note this week that there was "a creeping perception that the great BRIC economic surge has come to an end". He said India scored the lowest in the group on many measures of productivity.
The slump in January-March GDP growth to 5.3 percent had sparked alarm in industry and calls for the government and the central bank to take action to revive the fortunes of an economy that was expanding closer to 10 percent a year before the 2008 global financial crisis.
That has spurred expectations the central bank will cut its repo rate by 25 basis points (bps) to 7.75 percent next Monday, adding to a 50 bps cut in April.
But the RBI faces tough choices, with several economists warning that a rate cut without policy measures to reduce supply bottlenecks will drive inflation higher.
"Monetary easing to boost aggregate demand without a supply response will prolong the fight against inflation," said Rajeev Malik, senior economist at CLSA Singapore.
Finance Minister Pranab Mukherjee forecast on Monday a turnaround in India's growth prospects after S&P's warning that a leadership division between Singh and populist Congress party chief Sonia Gandhi risked driving economic liberalisation into reverse.
(Reporting by Rajesh Kumar Singh: Editing by Neil Fullick)