Published On: Sat, Sep 13th, 2014

The Road to Recovery for the Indian Economy Not Looking Hopeful

imagesIndia’s industrial output growth hit a four-month low in July while inflation remained high, underscoring the struggle of Asia’s third-largest economy to make a sustained recovery from its longest stretch of sub-par growth in decades.

Output from mines, utilities and factories grew by a much slower-than-expected 0.5 percent year-on-year, government data showed on Friday, down from June’s revised 3.9 percent rise.

Output growth hit a 19-month high of 5.0 percent in May.

Retail inflation, which the Reserve Bank of India (RBI) tracks for setting lending rates, edged down marginally to 7.8 percent in August from 7.96 percent a month earlier, helped by slower annual rises in prices of fuel and clothes.

The numbers come after the economy posted its fastest growth in 2-1/2 years in the quarter to June, helped by a revival in industry. Prime Minister Narendra Modi seized on that figure to highlight the “huge positive sentiment” behind India’s recovery.

However, high inflation would make it tougher for Modi to encourage Indian consumers, who power nearly 60 percent of the economy, to loosen their purse strings. It would also make the RBI wary of lowering interest rates later this month.

The RBI, which wants to reduce retail inflation to 6 percent by 2016, left interest rates steady last month, citing inflationary risks from a late monsoon.

Denisha Sahadevan

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The Road to Recovery for the Indian Economy Not Looking Hopeful