Economic weakness, which was evident throughout FY12/13, looks to have continued going into the start of FY13/14, judging by the recent batch of data releases for the month of April. Ongoing weak economic activity was underscored by a further loss in momentum in industrial output. In y-o-y terms, growth in industry slowed sharply from 3.4% in March to 2.3% in April, reflecting in particular the sharp deceleration in the manufacturing sub-sector. On a further downbeat note, overall industrial production shrank by 1.5% in April compared to the previous month. The contraction was much more pronounced than the -0.1% posted in March. Furthermore, the outlook for the sector appears to be largely gloomy as June’s manufacturing Purchasing Managers’ Index (PMI) suggests that activity was broadly flat amid a decline in new orders. Softness in the sector can also be attributed to power cuts and the general weak economic climate. In the same month, the services PMI was just as downbeat as the sector lost some momentum amid a sharp slowdown in new business growth.
Despite the raft of weak output indicators, there was some good news in the form of a continued slowdown in wholesale price pressures. In May, the wholesale price index (WPI) continued to moderate, slowing to a 43-month low of 4.7% (y-o-y). While the downward trend in the WPI sets the tone for further monetary easing, the Reserve Bank of India (RBI) opted to stay on hold at its policy review in June. Policymakers fear the weak Indian rupee, which has tumbled amid a general emerging market sell-off, will increase inflation risks going forward. Moreover, India’s record-high current account deficit also limits the chances of another rate cut. In our latest survey, forecasts for both growth and the current account have worsened slightly.
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