The 2068th year of the Indian Samvat era ended on a gloomy note for the economy. Even as the nation got ready to worship the Goddess of Prosperity on the eve of Diwali, the festival of lights, the outlook for the economy turned dark.
The country’s industrial output declined in September, the fourth time in six months, even as the trade deficit widened significantly and rising retail inflation burnt a bigger hole in consumers’ pockets.
It had led to industry bodies renewing calls for a rate cut by RBI, even as they urged the Government to move ahead fast on big-ticket reforms. “Industrial weakness is expected to continue in the near term and industrial output growth in 2012-13 appears to be heading towards a performance which will be even worse than the last fiscal,” Crisil said in a report.
Government data showed a decline of 0.4 per cent in industrial output in September. Meanwhile, exports continued to shrink, ballooning the trade deficit — the gap between imports and exports — to nearly $21 billion, the highest on record.
Inflation continued to eat away at the gains of growth, with retail inflation inching back towards the double digit mark at 9.75 per cent in October, compared with 9.73 per cent in September. The rise was fuelled by a sharp spurt in the prices of several food items including sugar, pulses and vegetables, as well as clothing.
The gloom on the economic front has spurred calls for a cut in interest rates to boost demand and kick-start growth. Planning Commission Deputy Chairman Montek Singh Ahluwalia dubbed the surprise fall in industrial output “very disappointing,” but said the September data did not reflect the impact of any recent initiatives. “These initiatives will also take some time to have an impact,” he added.
The manufacturing sector, which has highest weightage in the overall Index of Industrial Production (IIP), can be blamed for the contraction in growth.
Some of the sectors such as consumer durables (car, TV, fridge, washing machine, and so on) which declined in September may see a revival when October data comes in, as the festival season demand has been brisk.
However, manufacturing output may not pick up in October as well, since it is also linked to export demand, which plunged sharply in the month.
Data released by the Commerce Ministry show that exports in October contracted 1.63 per cent year-on-year for the sixth month in a row, to $23.2 billion, mainly due to the demand slowdown in the US and European markets.