India's factory output contracted by (-)1.8% in June, the third fall in four months, data released on Thursday showed and the finance minister P Chidambaram promised action to halt an embarrassing slowdown in the Indian economy, which, until recently, was an engine of global growth.
Capital goods output - a proxy for investment activity - contracted by (-)27.9% in June and business leaders ratcheted up their demand for a fresh round of stimulus measures including tax cuts and cheaper bank loans to boost investment, income and employment.
Chidambaram, who took over as finance minister last week, described the slowdown as "disappointing" obliquely hinting that a set of policies could well be round the corner to stem the crippling industrial deceleration in Asia's third largest economy.
"Supply side constraints upon manufacturing and exports must be removed in double quick time…. We intend to find practical solutions to the problems that impede higher production or output in the coal, mining, petroleum, power, road transport, railway and port sectors," Chidambaram said in a statement.Patchy monsoons are also likely shave off India's overall growth and may slid below 5.3% GDP growth recorded during January-March, the slowest quarterly pace in a decade.
The manufacturing sector, which accounts for 80% of India's industrial output, has slowed down considerably and contracted (-)3.2% in June as costlier borrowing force companies to defer planned investments and slowdown hiring.
"It is indeed a matter of serious concern with capital goods contributing significantly to the decline. This calls for immediate measures to stimulate investments in the economy," said RV Kanoria, president,Ficci.
"The July inflation data (expected next week) should confirm the persistence of price pressure. This, in turn, should reinforce the reality that the RBI is boxed in, with room for stimulus strictly limited," said Mole Hau, econonomist at BNP Paribas.