India output shrinks, prices jump in double blow
By Penelope MacRae, AFP
December 14, 2013, 12:02 am TWN
NEW DELHI--India's industrial output shrank by a surprise 1.8 percent in October and retail inflation accelerated to a nine-month high, data showed Thursday, dealing a double blow to recovery hopes for Asia's third-largest economy.
The year-on-year output fall, which exceeded market forecasts of a 1.1-percent decline, was the first contraction in four months and the second weakest number since year's the start.
Consumer price inflation, fuelled by rocketing food costs, jumped in November to a higher-than-expected 11.24 percent and stoked expectations of another interest rate hike at a monetary policy meeting Dec. 18.
“After a run of more encouraging data, the figures on Indian industry and inflation should help bring expectations for the economy back down to earth,” said Capital Markets chief Asia economist Mark Williams.
The figures were grim reading for the scandal-scarred Congress government, which has been hoping for an economic turnaround before elections due in May after being routed in recent state polls.
Reserve Bank of India governor Raghuram Rajan said the bank was “very uncomfortable” with the inflation level but added growth was also “weaker than we would like”.
He said monetary policy makers would look at all the data — including the widely watched Wholesale Price Index due Monday — before deciding whether to hike rates at its next meeting.
Finance Minister P. Chidambaram said taming inflation was the government's top priority, adding it is “common knowledge the government of the day will pay a high price for inflation”.
Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by two percent in October.
The numbers dismayed business, with Chandrajit Banerjee, director general of the Confederation of Indian Industry, saying they “cast a shadow on hopes the economy has bottomed out”.
India's economy grew at a decade low of five percent last year — a far cry from near-double digit expansion during India's boom times — due in part to high rates to combat inflation that slowed borrowing and spending.