Muted industrial activity points to slow recovery

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Jan 02, 2014 23:51 IST

Production activity in Indian factories slowed down in December, latest data from a monthly survey showed, demonstrating the fragile health of the Indian economy as it battles to claw out of a decade-low slowdown.

The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, fell to 50.7 in December from 51.3 in the previous month indicating faltering business conditions.

PMI is a metric to measure industrial activity capturing output to sales. A reading below 50 indicates contraction in factory output.

“Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth,” said Leif Eskesen, chief economist at HSBC.

Government data released on Tuesday showed that eight “core” industries accounting for 38% of overall industrial output grew at tepid 1.7% during November from 5.8% a year-ago.

Fiscal deficit touched 94% of the full-year target in November, setting a tall order for the government to keep the deficit within the budgeted 4.8% of the GDP this year.

The toxic mix of high inflation, low investments and widening deficit could not have come at a worse time for the government with elections about four months away.

India’s wholesale inflation climbed to a 14-month high of 7.52% in November, while retail inflation hit a seven-month high of 7.52% during the month, mainly because of costlier food items.

Food inflation, however, is showing signs of bottoming out on sharply lower vegetable prices upon arrival of fresh supplies.

Last month, the Reserve Bank of India maintained a status quo on lending rates preferring to wait for the December inflation data to decide on interest rate changes.

“Today’s (PMI) numbers show that growth remains moderate. Inflation pressures remain firm and are proving sticky. RBI may yet again have to flex its muscles and tighten monetary policy to bring down the elevated level of inflation,” said Eskesen.

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