India reported Friday that industrial output grew by an unexpectedly sluggish 0.5 percent in July, dimming hopes that Asia's third-largest economy is set for a sustained recovery. The half-percentage-point annual growth in production by mines, factories and utilities was the weakest in four months. The data underscored the uphill job facing right-wing premier Narendra Modi, who has just marked 100 days in power, to fulfil an election pledge to lift India out of its longest spell of sub-five percent growth in a quarter-century.
The figures, released after financial markets closed, "have dampened hopes that the (industrial) sector is on the cusp of a sustained recovery", said analyst Shilan Shah at research house Capital Economics. Foreign investors have poured billions of dollars into India's stockmarkets in hopes the economy is rebounding. But the industrial output growth was far below market forecasts of a two-percent jump and marked a sharp slowdown from a revised 3.9-percent expansion in June.
Overall manufacturing growth shrank by one percent in July from a year earlier. Most startling was a contraction in production of capital goods such as excavators, forklifts and other plant equipment - a signal of investment intentions and future economic growth. Capital goods output shrank by 3.8 percent in July after posting a year-on-year leap of 23 percent the previous month. While industrial output numbers can be volatile, "this was a major pullback", said Debopam Chaudhuri, chief economist at ZyFin Research. Consumer goods output contracted by a hefty 7.4 percent, underscoring still weak consumer confidence.