Factory output hits 16-month low; HSBC blames power cuts
01 Apr 2013
Underlining India's serious macroeconomic problems, a study released today said the country's manufacturing sector saw the slowest rate of expansion in 16 months in March.
The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index, prepared by Markit, was at 52.0 in March, compared with 54.2 in February. A figure above 50 indicates expansion.
The steady slump in factory output was attributed to unabated power shortages disrupting industrial activity, along with slowing growth in domestic and export orders.
According to Planning Commission estimates, a full overhaul of India's creaky infrastructure would cost $1 trillion in the current Plan period ending March 2017.
The plan panel of course does not directly address the key issue – the massive leakage of funds and shoddy execution of infrastructure projects, which are mostly government controlled.
This has led to foreign investors shying away from India's infrastructure projects, despite almost desperate pleas and numerous 'road shows' abroad by the country's ministers. Indian investors are have largely shied away from projects for public infrastructure-building, aware that nothing has changed in the track record of the government.
On a more positive note, HSBC said manufacturers in March used stocks to meet orders. "This suggests that output could get a lift in coming months as inventories are replenished," said Leif Eskesen, HSBC chief economist for India.
Input prices in March increased at their slowest pace in 32 months, though not slow enough for the central bank to lower interest rates.
"Encouragingly, input and output price inflation eased. Even so, the scope for further monetary policy easing remains limited," Eskesen said.
India's current account deficit has hit a record 6.7 per cent of GDP in the quarter just ended on 31 March to $32 billion, on account of a surge in oil and gold imports along with weak exports.
In the same period, India's GDP growth stood at 4.5 per cent, the weakest in the last 15 quarters.
Eskesen said output could get a lift in coming months as inventories are replenished. Inventories of finished goods were depleted to meet demand, partly due to the output disruptions caused by power cuts.
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