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The economy has entered the new year with some disappointing news.
Belying hopes of a recovery, industrial output contracted 2.1 per cent in November — the steepest decline in six months. Export growth also fell to a six-month low of 3.49 per cent to $26.3 billion in December, due to a fall in outbound shipments of petroleum products.
However, the silver lining in the December data was imports, which contracted for a seventh month. Inbound shipments stood at $36.48 billion, a fall of 15.25 per cent.
This dip, mainly contributed by gold and silver shipments, helped the government restrict the trade deficit at $10.14 billion, against $17.66 billion a year ago.
The curbs on import of the yellow metal brought down non-oil imports by 22.9 per cent to $22.58 billion in December. Compression in gold imports, from 142.5 tonnes in April to 10-15 tonnes a month now, has also eased pressure on the current account deficit (CAD).
Experts said reduction in imports would further help ease pressure on the CAD and make the rupee less volatile, as US recovery suggested continued buoyancy in software services’ exports.
CRISIL said in a note: “Overall, the trade deficit for October-December is at the same level as in July-September. Given this, and with service export growth in Q3 expected to be at least similar to that in the second quarter (in line with global recovery), India’s current account deficit is likely to remain close to the level seen in Q2 (1.2 per cent of the gross domestic product).”
Deutsche Bank said the CAD in 2013-14 could be lower than 2.8 per cent of gross domestic product (GDP), against 4.8 per cent in 2012-13. It said the latest softening of export data should not be seen as particularly worrisome, as growing global demand would push up exports soon.
The worrying point for the economy was the decline in industrial output, measured by the Index of Industrial Production (IIP), which was led by a 3.5 per cent reduction in manufacturing, though this could build a case for a rate cut by the Reserve Bank of India (RBI) in its third quarter review of the monetary policy, scheduled on January 28. A reduction in policy rate could help revive investment. But RBI would also watch out for the inflation numbers, which have been remained high. Inflation numbers are expected next week.
As consumer activity took a plunge, production of consumer durables and consumer goods fell 21.5 per cent and 8.7 per cent, respectively, in November, indicating industry was still wary of new investments despite government’s assurances.
Mining and electricity picked up a bit and recorded a growth of 1 per cent and 6.3 per cent, respectively, in November. However during April-November, even mining had contracted 2.2 per cent. While the decline in manufacturing was 0.6 per cent during the eight-month period, electricity showed a growth of 5.4 per cent.
CRISIL said though the mining ban had been lifted in Karnataka, revival in mining output would be slow as it would take time for firms to obtain relevant clearances and ramp up production.
Referring to the IIP numbers, Ficci President Sidharth Birla said: “This reinforces the belief that fall in manufacturing growth has not yet bottomed out. Urgent measures and fresh thoughts are required to boost manufacturing, without which the jobs potential here will remain depressed.”
Industry expressed disappointment at the trade numbers and asked the government to take measures, including widening the scope of incentives such as focus product scheme and focus market scheme, to help the country’s outbound shipments expand in double digits.
Little comfort could be drawn from the revised figures for the Index of Industrial Production for October, which now show a contraction of 1.57 per cent, against the earlier provisional estimate of 1.8 per cent.
