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India's economic revival outlook lower than expected
Last Updated: 2019-10-14 20:04 | Xinhua
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India's outlook for economic revival looks bleaker following the shrinking August factory production data along with lower inflation that reinforces fears of slowing economy and deteriorating consumer sentiment, according to analysts on Monday.

On Sunday, the World Bank had cut India's economic growth forecast to 6 percent compared to earlier forecast of 7.5 percent on lower demand.

Growth in Asia's third largest economy is expected to gradually recover to 6.9 percent in 2020-21 and to 7.2 percent in the subsequent year, the World Bank report said.

Last Friday, India's statistics office reported a 1.1 percent decline in Index of Industrial Production (IIP) for August, which was the first in 26 months and also the worst since the new base series began in 2013-14.

India's wholesale price inflation decelerated sharply to 0.33 percent in September, compared to 1.08 percent a month ago, as prices of manufactured goods were seen in deflationary territory, due to lack of pricing power with the producers.

The August IIP data added further woes to the lackluster economy and poses further downside challenges to India's Central Bank's GDP expectation of 6.1 percent year-on-year for 2019-20, as industrial value addition looks increasingly edgy, said Sparsh Chhabra, Economist at Centrum Broking, a domestic brokerage house.

Stating that IIP data was much weaker than expected, K Joseph Thomas, Head Research of Emkay, a domestic wealth management firm said, "If we look at the sub classification one can see that the shrinkage in output has come from a dismal performance in manufacturing, substantial fall in capital goods, consumer durables and infra. This amply reflects the underlying weakness in manufacturing and industrial activity which needs to be addressed without much loss of time for economic recovery."

As per the data, the decline in IIP was largely driven by a record fall of 21 percent year-on-year in capital goods production during the month under review and also the eighth consecutive month of a fall in this segment.

After recording double-digit expansion for three consecutive months, the pace of growth of intermediate goods halved to 7 percent in August 2019, standing out as the biggest contributor to the sequential slippage in IIP growth in that month, said Aditi Nayar, Vice President, Principal Economist, at credit rating agency of ICRA.

Earlier this month, India's central bank had cut policy rate for the fifth straight time by 25 basis points and overall by 135 basis points this year to revive economic growth amid stress in the country's banking system. Most analysts believe that the Central Bank may oblige one more time in December with another 25 basis point rate cut to drive growth.

To conclude, average IIP growth estimate for fiscal year 2020 is expected to drop and have a cascading effect on the year's GDP that will be closer to India's Central Bank forecast of around 5.3 percent than our initial forecast of 5.7 percent, said a report by Motial Oswal Securities, a domestic brokerage house.

(Editor:富博)

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India's economic revival outlook lower than expected
Source:Xinhua | 2019-10-14 20:04
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