India's industrial production contracted 0.1 per cent in November from a year earlier, government data showed on Friday.
Analysts polled by Reuters had expected output to grow 0.7 per cent annually. Revised data for October showed production at factories, mines and utilities grew 8.3 per cent compared with 8.2 per cent earlier.
Manufacturing, which constitutes about 76 per cent of industrial production, rose 0.3 per cent from a year earlier. In the April-November period, industrial production expanded an annual 1.0 per cent.
Here's what experts said:
Naina Lal Kidwai, President, FICCI:
While the data is indicative of high degree of volatility in the index as IIP has again registered a negative growth after a high growth in October, but the negative growth in mining, capital goods and intermediate goods indicates continuation of industrial slowdown for some more time.
Slowdown in electricity in the last few months is a cause for concern as it will also impact the industrial activity significantly.
Consumer demand is also showing signs of volatility as we had 13.2% growth in October and suddenly the growth has plummeted to 1%. In the absence of any significant change in the economic and political environment it is difficult to understand why this demand has fallen so much in just one month.
The Government has in the recent past announced some major reforms but there are some more which need to be announced quickly to boost business confidence. Also, what is needed now is that Government quickly resolves the ground level problems through mechanism like Cabinet Committee on Investment to stimulate economic activity in the country.
We would request the Government to ensure speedy execution of the National Manufacturing Policy which envisages setting-up of National Investment and Manufacturing Zones, an alternate Exit Policy for the industry and Technology Acquisition and Development Fund.
We also urge RBI to consider reducing interest rates to boost both investment and consumer demand.
Aditi Nayar, Sr. Economist, ICRA Ltd:
In line with expectations, the shift in the festival calendar was responsible for the sharp variations in industrial growth in October-November 2012. In our view, average growth for these two months provides a better gauge of the prevailing industrial trends; the improvement in industrial expansion to 4 per cent in October-November 2012 from a marginal 0.1 per cent in the first half of the fiscal year is moderately encouraging. Nevertheless, with domestic consumption sentiments and investment activity yet to see a substantial improvement, we expect the Central Bank to reduce the Repo rate in the upcoming policy review.
Harsh Pati Singhania, President, International Chamber of Commerce, India and Director, JK Organisation
The negative IIP growth data should be seen in the context of poor performance of mining and capital goods sector. However, it would be wrong to compare this with October IIP figures of 8 per cent growth. They were on the back of the festival season run up and a low base effect.
Nonetheless, the November figures indicate a continuing weakness in the economy. Perhaps it is time for RBI to take decisive steps towards easing of monetary policy in its forthcoming Quarterly review in January 2013 so as to boost consumer and investment demand.
A Prasanna, economist at ICICI securities Primary Dealership:
November output figures were weak but in line with expectations. Because of the festival related distortions, the right way to look at these numbers is to average the October and November growth. It comes to 3.9 per cent compared to 0.4 per cent for the year ago period, implying that demand conditions have improved. That said, the recovery in industrial demand continues to be modest.
With investment demand yet to pick up and consumption slowing at the margin, recovery in exports will be critical for improvement in industrial output. Such an outlook bolsters the case for a rate cut, however the timing and extent of rate cut will be dictated by the inflation trajectory. We expect RBI to cut the repo rate by 25 bps in the January policy review.
Radhika Rao, economist at Forecast PTE:
Correction in the November headline IP was largely priced in on passage of festive demand and manufacturers' possibly drawing down on inventories rather than stepping up production towards end-2012. Whilst the widespread of market expectations continues to signal uncertainty on the trajectory alongside clear disconnect with the PMI trends, the common strain now emerging is that the sector has likely bottomed out.
Building expectations that the RBI will lean towards rate cuts in Q1 2013 and easing inflationary prints could result in part stabilisation in demand indicators, which by extension should be positive for factory output. However, we are far from a full recovery at this juncture, especially as structural constraints persist.
Rahul Bajoria, regional economist at Barclays Capital:
I think there are more signs of a bottom appearing now and sentiment has turned. This number was expected to be low this time but momentum is healthy and if RBI cuts rates in January then it will be another boost. I expect the next couple of prints to be better driven by consumer demand and manufacturing activity and also expectations of rate cuts.
Dariusz Kowalczyk, senior analyst at Credit Agricole:
Poor IP data mostly reflects base effects but will still weigh on sentiment and cap the INR for today. Bottoming out of growth is gradual indeed, but we still like the currency a top Asian pick in 2013.
Anubhuti Sahay, economist at Standard Chartered Bank:
This is the fourth negative print observed in the eight months of 2012/13 and shows that October IIP of 8.2 per cent was driven by a weak base effect/festive season. Indeed the index corrected by -2.3 per cent month-on-month.
The next print is unlikely to be very strong. Overall, this again reminds of the weak industrial activity in the economy and strong positive prints (favourable base effect in Jan-March 2013) should not be inferred as a rebound in the segment.
We expect RBI to reduce rates by 100 basis points in 2013. With weak economic activity a rate cut is likely and Monday's WPI would decide whether we get it on January 29.
Upasna Bhardwaj, economist at ING Vysya Bank:
While today's IIP figures remain dismal as per our expectations, we see a clear bottoming out of the industrial growth with a mild improvement going forward. No change in policy expectations post this data. We continue to expect the RBI to gradually shift its focus towards tackling growth with a 25 bps cut in the repo rate at the January 29 meeting.
Shakti Satapathy, fixed income analyst at A K Capital:
The data is a reflection of higher base effect and reiteration of dismal growth in manufacturing and mining activities. We expect the negative number would lead to a repo rate cut in the forthcoming policy meet. However, with a softening WPI number expected, the central bank might consider a bigger repo cut (50 bps) and pause in the subsequent meet.
Anjali Verma, economist at PhillipCapital:
I was against consensus and was expecting a 0.7 per cent decline in November. If we see the headline number, it is more or less in line with the trend. October was an aberration due to the low base. I expect the full year IIP growth at 2 per cent.
The inflation data on Monday will be very critical. I am still sticking to a 25 bps repo rate cut on January 29.
Gautam Singh, economist at Anand Rathi Securities:
We think growth has bottomed out. Going ahead IIP growth will be between 2-5 per cent over the next 3-4 months.
We remain bearish on inflation with the December number likely around 7.6 per cent and the October number revised up to 8 per cent. We think that the RBI will hold rates on January 29 and may do a CRR cut only. The central bank will likely ease by 75 bps in March-June with a front-loading in March.
Shubhada Rao, chief economist at Yes Bank:
The contraction in capital goods after a brief reprieve last month reiterates that investment cycle is yet to pick up in a meaningful manner.
As such, consumption-led growth, which in itself is moderating, has further downside risks to growth. However, our estimate for growth is at 5.7 per cent, and for industrial production under 2 per cent, for the ongoing financial year.
We are of the view that the Reserve Bank of India will definitely cut rates by 25 basis points, maintain a dovish tone, and a commitment to maintain liquidity in the comfort zone through open market operations, which will pave way for better transmission.
With inputs from Reuters
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