Indias industrial output contracted a sharp 3.5% in March leaving the growth in factory output for 2011-12 at just 2.8%. Indeed,how much has changed in a year; in 2010-11 the growth in the IIP had been a robust 8.2%. The key culprit,once again in March,has been the capital goods segment which degrew 21.3% y-o-y and its no secret that capital formation,a must for future growth has been falling; it contracted for a second consecutive quarter in the three months to December,2011,by 1.2% y-o-y. Indeed,theres much to be worried about because intermediate goods,considered a lead indicator of growth,contracted 2% in March. The bottom line is that GDP for 2011-12 would have risen by just about 6.7-6.8%.
Just for some perspective,the moderation in the PMI over the past few months was arrested in April when it inched up to 54.9. But although stocks of finished goods came off marginally signalling a running down of inventories,it was accompanied by a sharp decline in the stocks of purchases,not heartening. The bright spot in the economy,exports,too appears to be fading. In April 2011,exports had increased by 32% y-o-y but this time around,they were up just 3.2% y-o-y and the trade secretary says India will be lucky to have a growth,for the full year,of 10-15%. With the current account deficit at 4% of GDP,the Reserve Bank of India (RBI) has no room to cut interest rates so unless the government gets going with reforms,well be lucky if GDP for 2012-13 comes in at 7%.