India’s industrial output contracted and inflation plunged to a three-year low, intensifying the pressure on the Reserve Bank of India (RBI) to cut interest rates to revive investment and aid an economic turnaround.
Factory output fell by 4.2% in October from a year earlier, while retail inflation moderated to 4.38% in November on falling food and oil prices. “We discussed a range of economic issues,” RBI governor Raghuram Rajan told reporters after meeting finance minister Arun Jaitley on Friday.
Jaitley has indicated he would favour a cut in borrowing costs. Rajan has kept interest rates high ignoring mounting criticism from parliamentarians and industry leaders who believe costly borrowings are blocking greater investment and consumer spending. Retail food inflation slowed to 3.14% in November compared to 5.59% in the previous month, as vegetable costs slumped this year.
Industrial deceleration is a bigger worry for the government. The manufacturing sector, which accounts for 75% of total factory output, fell 7.6% in October, while consumer durables output fell 35% showing lower spending on goods such as cars and refrigerators despite the festive season.
Capital goods output also fell 2.3% mirroring weak investment activity. “Substantial efforts have been made by the government to ensure a recovery. All this can now be complemented by a reduction in interest rate by RBI,” said Chandrajit Banerjee, director general of CII.