India’s factory output crawled at 2% in April, while retail inflation dropped marginally to 9.31% in May — two sets of data that are likely to determine the Reserve Bank of India’s (RBI’s) next move in its mid-quarter review on Monday amid a chorus of demand from business leaders to slash lending rates to arrest the economic slowdown.
However, in a welcome relief to the government, Fitch revised India’s sovereign ratings outlook to “stable” from “negative” a year after its initial downgrade, citing government measures to contain the budget deficit and the progress made in improving investment and economic growth.
Finance minister P Chidambaram is expected to announce measures to reverse the slowdown and boost the rupee on Thursday.
The rupee, which has slid more than 8% against the US dollar since May, will likely fan inflation by knocking up prices of imported goods including crude oil. Costlier fuel, in turn, will raise prices of most goods, making it much more difficult for the RBI to slash lending rates next week.
The index of industrial production (IIP) — the closest approximation for measuring economic activity in the country’s business landscape — had expanded 3.4% in March. Retail inflation measured by the consumer price index had grown 9.39% in April.
Consumer durables’ output fell 5.4% during April compared to a growth of 5.4% in the same month of 2012, clearly mirroring what most shop-end evidence has been throwing up. Spend on television, refrigerators and cars since autumn continue to remain muted, squeezed by high prices and low income growth.
The fact that automobile sales contracted 6.7% in 2012-13 versus a 2.2% growth in the previous year supports the view.
One-in-five dealers in India expect to take a financial loss in 2013, more than double the number compared with 2012, and only 44 % of dealers expect to make a profit for the 2012-2013 financial year, according to the JD Power Asia Pacific 2013 India Dealer Satisfaction with Automotive Manufacturers Index (DSWAMI) StudySM released on last month.
"Broadly, incoming data suggest that growth remains weak, while lower input costs are not yet being passed onto consumers," said Sonal Varma, economist at research firm Nomura.