Double whammy

The combined output of eight core sector industries, which together account for 38% in the Index for Industrial Production, contracted for the first time since 2005, falling 2.5% in February. Further, the HSBC India Manufacturing Purchasing Managers' Index (PMI) indicated that expansion of output from Indian factories was at its slowest in 16 months in March, in the wake of wilting demand at home and overseas. The survey-based index dropped to 52 in March from 54.2 in February.
Together, the latest data suggests industrial growth is unlikely to improve on the 2.4% recorded in January, denting hopes of the economy rebounding from the expected decade-low 5% GDP growth last fiscal to the 6.5% targeted by the government for the year ending March 31, 2014.
However, addressing the media in Tokyo, Finance Minister P Chidambaram remained sanguine, predicting the economy would expand 6.1-6.7% this fiscal.
Chidambaram promised more reforms and said the economy could absorb up to $50 billion of FDI per year.
Five of the eight infrastructure sectors — coal, natural gas, crude, fertilisers and electricity — reported negative growth in February. Cement bucked the trend with a 3.9% growth while refinery products and steel rose 4.3% and 0.5%, respectively.
The 4.1% decline in electricity output in February, the first since September 2005, seems to have hit manufacturing activity, suggests the PMI.

The latest data is likely to trigger more downgrades in growth prospects for the current year after the 4.5% GDP growth reading for October-December quarter saw most private economists cut growth estimates to less than 6%.
Policymakers do not have much in their arsenal to deal with the slump even as political uncertainty has emerged as a big drag on the economy in the last few days. As a result, big-ticket investments could be delayed further.
The Reserve Bank of India had cut repo rate in its March 19 policy review by 25 basis points, but said further monetary easing was not possible if inflation remained high. The high fiscal deficit has tied the government’s hands when it comes to boosting growth through traditional stimulus programmes.