Recovery hopes fade as factory output, exports contract

Recovery hopes fade as factory output, exports contract

Recovery hopes fade as factory output, exports contract

Dashing hopes of recovery, the factory output declined by 1.9 per cent in February while exports dipped by 3.15 per cent in March, prompting the industry to demand an immediate rate cut by the Reserve Bank to boost the economy.

The industrial output, which had shown some signs of recovery in January, again entered the negative territory mainly due to 3.7 per cent contraction in the manufacturing sector, according to data released by the government.

As regards trade, exports declined by 3.15 per cent for the second month in a row in March, while the trade deficit touched five-month high of USD 10.5 billion.

Expressing disappointment over the declining industrial output, CII Director General Chandrajit Banerjee said: "We hope that the RBI would take note of the alarming industrial growth situation and start an easing cycle on the interest rate front. At this moment, waiting for the next monetary policy review might not be required."

Factory output as measured by the index of industrial production (IIP) showed a decline of 0.1 per cent during the 11-month period from April to February compared with growth of 0.9 per cent in the corresponding period a year earlier.

Manufacturing, which constitutes over 75 per cent of IIP, contracted 0.7 per cent in April-February period.

Factory output started declining in October last year, when the IIP contracted 1.2 per cent, and continued till December.

Production of capital goods, a barometer of demand, shrank 17.4 per cent in the month under review, in sharp contrast to an expansion of 9.1 per cent in the same month in 2013. The segment declined 2.5 per cent in April-February.

Overall, 13 of the 22 industry groups in manufacturing showed negative growth in February.

Commenting on the data, Ficci Director General Arbind Prasad said: "Such a steep fall in manufacturing disproves that growth has bottomed out. Both consumer demand and investment conditions seem to be weakening thereby further dampening the outlook for manufacturing."

In March, exports contracted to USD 29.57 billion and imports fell 2.11 per cent to USD 40 billion. For the whole of 2013-14, exports grew by about 4 per cent to USD 312.35 billion, while imports dipped 8.11 per cent to USD 450.94 billion.

Exports during the last financial year fell short of the annual target by about USD 13 billion. The trade deficit, however, at USD 138.59 billion in 2013-14 was the lowest in the last three years.

A drop in gold and silver imports helped in reducing the trade gap. "Slowdown in manufacturing, liquidity crunch, currency appreciation, coupled with depreciating currency of few of our trading partners, softening of metal and commodity prices and uncertainty in a few regions of the world are the prime reasons for the slowdown," Federation of India Export Organisations President Rafeeque Ahmed said.

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