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IIP, trade deficit slay hopes of faster recovery

Saturday, 12 April 2014 - 10:00am IST | Place: Mumbai | Agency: dna

Business confidence, as reflected in the Index for Industrial Production (IIP), de-grew 1.9% in February against the 0.8% growth in January, while the country's trade deficit hit a five-month high in March at $10.51 billion.

Most experts said the current trade deficit figures were getting more realistic and the new government would have more than what it can manage on its plate.

The IIP data showed de-growth in capital goods at 17.4% against the previous month's de-growth of 4.2%, while consumer durables also de-grew at 9.3% against the negative growth of 8.3% in the earlier month.

Consumer non-durables contracted 1.2% against the previous month's growth of 4.4% and consumer goods fell by negative 4.5% versus the previous month's de-growth of 0.6%.

According to Arun Singh, senior economist at Dun & Bradstreet India, the strong decline in the IIP growth data show that the turnaround in the industrial activity is still few months away.

The most disappointing part is decline in the growth rate of 13 out of the 22 industry groups in the manufacturing sector during February 2014.

"The surprise fall in non-durables and sharp decline in capital goods segment indicate that revival in the industrial sector would be much longer than earlier anticipated. The non-core industrial sectors continued to under-perform as a 4.5% increase in the eight core infrastructure sector in February 2014 failed to support the overall IIP growth," he said.

Manufacturing fell 3.7% year on year in February and industrial output fell in four of the last five months.

On trade deficit, curbs in gold imports on account of higher taxes, reduced trade deficit to $138.60 in fiscal 2014 from $190.30 in fiscal 2013.

"The trade deficit and IIP figures only indicate that interest rates are not seen easing in the immediate future and the new government will have to work overtime to get back investor and business confidence," said a senior executive at a financial institution.

Exports for March were up $29.58 against the earlier month's $25.69 billion, but this was offset by higher imports of $40.09 billion from February's $33.82 billion.

For fiscal 2014, exports stood at $312.4 billion, or 3.99% higher from fiscal 2013's $300.40.

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