India said Tuesday industrial output expanded by an unexpectedly slow 3.4 percent in June from a year earlier while inflation accelerated, dimming prospects of a quick economic recovery.
Economists called the industrial production and inflation data a "disappointment" for the new right-wing government as it seeks to steer the country out of its longest period of sub-five percent growth in a quarter-century.
The growth in output by mines, factories and utilities marked the third straight month of industrial expansion in Asia's third-largest economy.
But the 3.4-percent annual growth in June undershot market forecasts of a 5.2-percent rise and marked a significant slowdown on the 4.7 percent expansion recorded in May, showing that the economy is still struggling.
In other bad news, separate data showed that consumer prices rose 7.96 percent in July from a year earlier, far above the six percent target set by the hawkish central bank and exceeding the previous month's revised 7.46 percent rise.
"The industrial production and inflation data for India were a disappointment," Capital Economics analysts Daniel Martin and Gareth Leather said in a note to clients.
Although the industrial output growth was still the second-fastest monthly rate in more than a year, "it has dampened hopes that the industrial sector could be on the cusp of a sustained recovery", the economists said.
The higher-than-expected consumer inflation -- which defied market forecasts that retail price growth would dip -- means that the central bank will have less room to ease high interest rates to spur economic growth, they added.
- Weak consumer demand -
Output of consumer durables such as stoves and fridges shrank a significant 23.4 percent in July from a year earlier, surprising economists who had believed that a rise in car sales implied stronger across-the-board consumer demand.
The economy grew by 4.7 percent in the financial year to March 2014, its second consecutive year of below five percent growth.
The Bharatiya Janata Party government led by Prime Minister Narendra Modi that took power in late May has been hoping to see "green shoots" of recovery.
Modi won the biggest parliamentary majority in three decades after campaigning on a platform to revive the economy.
Some economists have warned it will take time for companies to ramp up expansion plans and for consumers to regain confidence.
Still, economists are hoping that an upturn in the global economy will create more demand for Indian exports which grew by more than 10 percent in June for the second straight month.
Modi also has been seeking to sweep away bureaucratic and other hurdles to foreign investment needed to upgrade shabby ports, roads and other infrastructure and ease production and distribution bottlenecks.
The prime minister has the strongest electoral majority in three decades in the lower house after his party ousted the left-leaning Congress in May at the polls.
But Modi's ability to push through tough amendments to make labour, land acquisition and other laws more business-friendly to spur growth is in doubt.
Modi's party is in a minority in the upper house and opposition members have warned that such changes could hurt India's hundreds of millions of poor.
Date created : 2014-08-12