HindustanTimes Sun,21 Dec 2014

Industry slows, prices still rising

HT Correspondent, Hindustan Times  New Delhi, February 12, 2013
First Published: 11:41 IST(12/2/2013) | Last Updated: 01:37 IST(13/2/2013)

Factories are producing less, people have cut down on consumer goods purchase and prices continue to rise sharply.


The latest data released by the Central Statistics Office on Tuesday showed that India’s factory output fell 0.6% in December, the sixth monthly shrinkage in 2012-13, while retail prices climbed to 10.79% during the month.

The data, which demonstrate the difficulties of people caught between rising living costs and slowing income growth, come barely days after the CSO estimated that the growth rate will crash to a 10-year low of 5% in 2012-13, triggering sharp responses from the finance ministry and the planning commission.

C Rangarajan, chairman, Prime Minister’s Economic Advisory Council, said, “The investment rate has come down, but not so much to leave us with such a lower growth. I think some large investments are locked up in areas like power.”

He said, “If we can activate these investments we should be able to achieve higher growth… If we do it, the Indian economy should be able to grow 6.5%-7% next year and 8% in the subsequent years. I remain optimistic.”

During the past 12 months, prices surged sharply, signaling India’s inability to control household inflation, partly stoked by a falling rupee.

The production of consumer durables fell 8.2% in December, reflecting weak demand for goods such as televisions and refrigerators. The capital goods output, a proxy for investment activity, also continues to shrink— a clear sign that firms were putting off capacity expansion plans.

The rising prices have hurt family budgets hard, especially at a time when thousands of factories and firms in India, squeezed by costly input and borrowing costs, have offered meagre salary hikes and are holding back expansion and hiring.

Last month, the Reserve Bank of India slashed its key lending rate –the repo rate – to 7.75 % from 8 %, enabling banks in turn to offer cheaper loans for home, auto and corporate borrowers.

The high interest rate, besides making borrowing costlier for companies, had also slowed down purchase of cars and consumer goods that are mostly bought through bank finance.

Expectedly, industry leaders ratcheted up the demand for lowering of interest rates. “It is definitely a cause for serious concern as both consumer goods and investments have witnessed negative growth,” said Naina Lal Kidwai, president of industry body Federation of Indian Chambers of Commerce and Industry.

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