India’s factory output contracted by 0.1% in November, pulled down by poor manufacturing and capital goods output that mirrored weak investment activity among companies.
Factory output as measured by the index of industrial production (IIP), had grown 6% in the same month last year and by 8.3% in October this year.
The question now is whether the Reserve Bank of India (RBI) accedes to the industry’s demand and slashes lending costs in its quarterly monetary policy review later this month.
The RBI uses monetary tools to stymie demand and cool prices. The tug-of-war between sliding growth and rising inflation — which has forced the bank to keep interest rates high — appear to have hurt consumption demand, a strong edifice of the India growth story.
But India’s overall consumer price inflation — a more realistic cost-of-living measure because it captures shop-end prices — is again uncomfortably close to double digits.
“RBI will look at a number of factors. Wholesale price index (WPI) will be one input. RBI will have to see about an appropriate action being taken in order to contain the fiscal deficit... Trends are in the right direction perhaps. But let us wait,” said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.
Planning Commission deputy chairman Montek Singh Ahluwalia said growth has bottomed out and steps taken by the government to improve investor sentiment would yield fruits in coming months.