Friday, August 12, 2011

June IIP growth above estimates at 8.8% versus 5.6% in May

NEW DELHI: India's annual industrial output grew 8.8% in June as compared to a nine-month low of 5.6 percent in May. IIP figures were above estimates. A Reuters poll had indicated a growth of only 5.5%.

Manufacturing growth for the month of June was at 10% as compared to 5.6% in May. The growth of basic goods was at 7.5% against 7.2% in May.

The Reserve Bank of India raised key interest rates by a steeper-than-expected 50 basis points last month, the 11th increase since March 2010 that are now starting to drag growth.

A gathering global slowdown in demand, led by worries that the United States is at risk of falling back into recession, has clouded the outlook for Asia's third-largest economy.

The HSBC Markit Purchasing Managers' Index fell sharply for a third straight month to 53.6 in July, its lowest since November 2009, suggesting the slowdown has persisted.

Food inflation surged to a four- and-half month high of 9.90 per cent during the week ended July 30 on the back of costlier onions, fruits, vegetables and protein-based items.

This is the highest rate of price rise in food items since the week ended March 12, when food inflation stood at 10.05 per cent.

The Planning Commission is likely to lower its growth target for the next Plan period (2012-17) to 8.5-8.7% from an earlier range of 9-9.5%.

India's economy is expected to expand only about 8% in the current 2011-12 fiscal, the terminal year of the eleventh Plan. The downgrade in the growth target for the next Five-Year Plan is largely due to grim prospects of global economic growth coupled with uncomfortable domestic fiscal deficit and balance of payments situation.

India's fiscal deficit (states and centre combined) is around 8% and is not likely to drop sharply anytime soon. The current account deficit of over 2.5% of GDP is on the higher side, requiring India to keep importing capital to bridge the gap.

Merchandise exports rose at their fastest pace in 16 years, but a government official warned of a sharp slowdown ahead because of the uncertainty in the country's main markets, the US and Europe.

July exports surged nearly 82% from a year ago to $29.3 billion while imports grew 51.5% to $40.4 billion, trade data released on Thursday showed.

FICCI suggested that the Reserve Bank should lower the policy rates to tackle the moderation in the economy, facing the headwinds of high inflation and an uncertain global recovery.

"The situation is now ripe for the apex bank to go for a rate cut and put an end to the interest rate hike cycle," FICCI said in a statement.

It said the strongest signal that can be given to investor community to maintain their faith in India's growth story "is for (the) RBI to cut interest rates and provide the necessary stimulus through monetary policy action."

Global rating agency Standard and Poor's last Friday downgraded the long-term sovereign credit rating of the US, triggering a mayhem in equity markets across the world. This is the first time the US has lost its top-notch 'AAA' rating. 

Source : ET

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