Inflation sharply down, but industrial output also dips (Roundup)

March 12th, 2009 - 7:11 pm ICT by IANS  

New Delhi, March 12 (IANS) It was a mixed bag of news Thursday on the Indian economy’s performance as fresh data showed the country’s annual rate of inflation at its lowest levels since 2002 even as industrial output declined for the second straight month.
The day started on a positive note as the latest data on wholesale price index showed that the country’s annual rate of inflation had fallen further to 2.43 percent for the week ended Feb 28 from 3.03 the week before.

At this level, the inflation figure was at its lowest since June 2002.

But soon after came the latest figures on the index of industrial production that showed a 0.5 percent fall in January to log a decline for the second month in a row, despite the stimulus packages of the government to pump prime the economy in the wake of the global slowdown.

The slide, based on the official data released by the commerce and industry ministry was on account of a 0.8 percent drop in manufacturing index and a 0.4 percent fall in the index for mining. Electricity generation was up 1.8 percent.

The fresh data placed a question mark over India being able to log an overall economic growth of around 7 percent for the current fiscal as a whole, as industrial production has been able to expand by only 3 percent during the first 10 months.

The country’s industrial production had dropped in October for the first time in 15 years, following which it made a slight recovery next month with an expansion of 1.7 percent. But the index fell again in December, leaving India Inc worried.

“Inflation has fallen to accepted level but continuing contraction in industrial production is indicative of the fact that India’s growth momentum is in for some serious trouble,” said the Associated Chambers of Commerce and Industry (Assocham).

“The 0.5 percent fall in India’s industrial output in January 2009 does not augur for well and also shows that India Inc has fallen under severe pressure of slowdown at least for some time,” chamber president Sajjan Jindal said.

He also warned that India’s overall growth will be much lower than targeted even as the country will have to prepare for job losses, higher government deficits and a hold on expansion programmes of industries.

On the inflation front, which was one of the most worrying factors for policy-makers a year ago, economists felt there was scope for a further fall from the levels seen end-February.

Dalip Kumar, the head of projects at the National Council of Applied Economics Research (NCAER), a Delhi-based think tank, said the inflation rate has come down due to the low prices of non-food commodities and manufactured products.

“Going by the inflation data, it seems we could go below zero. But I still have some reservations at the present rate as the food commodities continue to remain at the higher side,” said Kumar.

D.K. Joshi, principal economist at credit rating agency Crisil Ltd, shared the viewpoint. “The base effect is very strong. The inflation should fall further and could even reach zero,” he said, referring to the much steeper rise in the prices last year.

Using the low inflation rate to push home its demand, the Federation of Indian Chambers of Commerce and Industry (FICCI) wanted the FICCI wanted commercial banks to lower the their interest rates at the retail level.

“Unless the lending rates are brought down to single digit level, the economic recovery will take a long time,” said Harsh Pati Singhania, the newly-elected president of the leading chamber.

“Hopefully, we should see some recovery from February 2009 onwards particularly in the context of improved demand seen in sectors like automobiles, consumer durables and cement.”

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