India's industrial production unexpectedly contracted by 0.4% in September, as manufacturing dried up and electricity generation tumbled, while a deceleration in capital goods segment for a seventh time in a row suggested continuing dismal investment climate.
This could dampen hopes of a significant recovery in the overall economic growth in the second quarter through September – after modest expansion in August – unless the services sector pitches in substantially. Industrial output accounts for roughly 19% of the GDP.
All eyes are now on the October wholesale inflation figures, to be released on Wednesday, for indications if the central bank would finally relent on its hawkish stance and trim the benchmark lending rate before January to boost growth. The retail inflation, however, inched up to 9.75% in October from 9.73% the previous month, offering no respite to policy makers.
The central bank had left interest rates unchanged last month but reduced the cash reserve ratio for banks, defying pressure from the finance ministry to trim rates for the first time since April. However, it had hinted at easing the rate in early 2013, as early as January, to prop up growth. The country's GDP grew at 5.5% in the first quarter through June, the lowest pace in three years barring the previous quarter.
The industrial output growth for August has also been revised down to 2.3% from 2.7% announced earlier, according to the data released by the Central Statistical Office on Monday. Analysts were expecting a 2.8% expansion for September. Industrial production had grown by 2.5% in September last year.
According to the latest data, manufacturing, which accounts for about 76% of industrial production, contracted by 1.5% in July, compared with 3.1% growth a year earlier.
Mining grew by an impressive 5.5% in July, compared with a 7.5% slump a year earlier.
Mining had posted growth for the first time in 2012 in February following sixth consecutive months of contraction. However, electricity generation growth dropped 3.9% in September from 9% a year earlier.
Capital goods output – a gauge for investments – in September contracted by 12.2% despite a low base of -6.5%. Although capital goods recovered from the worst monthly performance at least since April 2006 in June, the production has slumped in 13 out of the 18 months through September 2012, confirming a protracted slowdown despite notorious fluctuations in the overall industrial production figures.
Basic goods production growth dropped