New Delhi: India's industrial output growth almost stalled in April compared with a year earlier, reinforcing expectations the central bank will cut rates next week to try to combat a slowdown in the economy. COMMENTARY
The government data showed that output rose just 0.1 percent in April, lower than expectations in a poll for a 1.7 percent increase. Output fell in March from a year earlier by 3.5 percent.
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI
"The data clearly points to industrial growth being extremely weak, and it is in clear need of monetary as well as fiscal support. I think industrial growth needs monetary stimulus irrespective of what the headline inflation number shows day after tomorrow.
"There is a case for a sharp move from the Reserve Bank of India, and I would not be surprised if RBI goes for a 50 basis points repo rate cut or a combination of 25 basis points cut in both repo rate and the cash reserve ratio.
"The industrial growth is looking very weak irrespective of legitimate skepticism on the veracity of IIP data. We are seeing sustained slower growth in industry, which is becoming broad-based.
"A lot of what Standard & Poor's said was valid, but the timing was misguided and misplaced. The rating agency could have avoided this in the middle of turmoil that India and other economies are going through; it just added to the negative sentiment. Some degree of caution from the rating agencies is called for."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"There was absolutely no reason for any improvement in the data given the ongoing investment slowdown and imported inflation due to the rupee depreciation. The RBI has no alternative but to reduce policy rates by 50 basis points, as there is no space left for any fiscal stimulus."
SUJAN HAZRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
"I think the RBI needs to boost liquidity at this point, otherwise rate cuts will remain symbolic. The central bank should cut the cash reserve ratio by 50 basis points along with a 25 basis points cut in repo rate.
"We were expecting the main weakness to come in from the services sector in FY13. But today's manufacturing print shows that it may also be a cause of concern."
RAMYA SURYANARAYANAN, ECONOMIST, DBS, SINGAPORE
"On a sequential basis output expanded by 5 percent but this is too little as it comes after a generally weak past 9 months. This is why the YoY growth rate is flat. In particular in April, weakness in mining and capital goods has dragged industrial output lower. Meanwhile, consumption demand is also moderating possibly as the uncertain global outlook and domestic challenges combine to cast a shadow on the job market."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"It is a very disappointing number. While consumption is barely holding up, the worrying factor is a 10-month consecutive contraction in intermediate goods. Capital goods being an unpredictable data series continues to surprise us on the negative. We have penciled in a 25 basis points repo rate cut at the policy.
"Current liquidity conditions do not warrant a cut in CRR as OMO (open market operation) is expected to be the preferred route though we expect a cut in CRR by 100 bps in the second half of FY13."
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
"The lower data is largely a reflection of seasonal adjustment in the beginning of the fiscal year partially a weak print in the core output. However, the surge in indirect tax collection figures coupled with Q1 advance tax collection would give a clear picture of uptick in the production activities.
"A fiscal action would count more productive in reviving the growth sentiment in the current phase rather than a temporary sweetener in terms of a further rate cut. This is totally a year beginning adjustment not indicating any concrete picture."
SONAL VARMA, ECONOMIST, NOMURA, MUMBAI
"The momentum is very weak and the investment side is seeing deceleration. This reading increases the probability of a 50 basis points cut in the repo rate, but our base case is of a 25 basis points cut.
"What S&P has done is a warning shot, because even a month after the downgrade, we have not yet seen concrete action from the government."
UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
"The IIP figures reaffirm the weak activity as high interest burden and uncertain regulatory environment continues to shelve investment plans. With sharp deceleration in the growth momentum, we expect RBI to cut the repo rate by 25 bps in the forthcoming meeting."
DEVEN CHOKSEY, MANAGING DIRECTOR, K.R. CHOKSEY SECURITIES, MUMBAI
"Tightening of rates earlier have impacted GDP and IIP numbers. Inflation may not come down, but rate cut is a must now because we are really lagging action.
"I wouldn't be surprised if RBI cuts rates and CRR (cash reserve ratio) by 50 basis points each at the policy next week."
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
"I think this data will call for a policy response from the RBI as this eventually also has an impact on GDP. Given core inflation is well behaved, I now expect RBI to cut rates by 25 basis points in June. Looking at the rupee, equity markets, things are pretty bad irrespective of any downgrade by S&P. Downgrade is just a cosmetic change.
"But I think this data is distorted. The GDP and IIP data shows exaggerated slowdown. If this kind of data continues, it will have an impact on sentiment and will be self-fulfilling.
Markets barely reacted to the industrial output data, given widespread expectations for a weak expansion.
The rupee was in range at 56 to the dollar, little changed from before the data. The benchmark 10-year bond yield was also flat at 8.31 percent from beforehand.
Stocks pared mild losses to trade flat, with the benchmark BSE index unchanged on the day.
- Standard & Poor's said on Monday that India could become the first of the so-called BRIC economies to lose its investment-grade status, less than two months after cutting its rating outlook for the country.
- The Reserve Bank of India is widely expected to lower its main lending rate by 25 basis points (bps) to 7.75 percent on June 18 when it reviews its policy for the first time after cutting rates by a sharper-than-expected 50 bps in April.
- Falling global oil prices as well as declining core inflation and growth in India give the central bank room to adjust interest rates, a deputy governor said last week.
- The economy expanded 5.3 percent in the March quarter, its slowest pace in nine years, on a combination of mounting global uncertainty.
New Delhi: India's industrial output growth almost stalled in April compared with a year earlier, reinforcing expectations the central bank will cut rates next week to try to combat a slowdown in the economy.