New Delhi: India's industrial output shrank by a shock 1.6 per cent in May from a year ago, official data showed yesterday, adding to mounting gloom about Asia's third-largest economy.
The contraction by India's factories, mines and utilities was well below market expectations of a 1.5-per cent production rise.
Manufacturing, which accounts for three-quarters of the Index of Industrial Production, slumped by 2.0 per cent in May from a year earlier.
"These figures tell you very clearly industrial recovery is not yet in sight — this is definitely a surprise on the downside," D.K. Joshi, chief economist of India's leading credit rating agency Crisil, told AFP. The figures marked more grim reading for Prime Minister Manmohan Singh's Congress-led government which is desperately hoping for signs of a growth turnaround before fighting general elections due in the first half of 2014.
In another blow, April's industrial output growth was cut to 1.8 per cent growth from 2.8 per cent reported earlier, the Central Statistical Office said.
But despite the weak production, the central bank is ill-placed to cut interest rates to kickstart the economy, which is under the threat of a credit ratings downgrade, economists said.
The rupee is hovering near lifetime lows against the dollar and separate data yesterday showed retail price inflation climbing to 10.13 per cent in June from 9.65 per cent in May.
"For any policymaker, it is a very challenging time. You have urgent situations over the rupee, inflation and now manufacturing," Joshi said.
"There is no magic wand except that the government must start implementing some of the economic reforms it has been promising," he said. India's economy has been struggling under the burden of high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a string of corruption scandals.