India's industrial output fell in October for the first time in more than two years as capital goods investment slumped, ramping up pressure on the central bank to ease monetary or liquidity conditions, possibly as soon as Friday. Production at factories, mines and utilities plunged 5.1 percent from a year earlier, far worse than expected, another blow for the embattled government of Prime Minister Manmohan Singh, which is struggling to revive India's economic fortunes.
"It is a lot worse than we expected. The nearly two years of monetary tightening is clearly being felt," said Tim Condon, head of Asian economic research at ING in Singapore. The fall in industrial output, an often volatile indicator, was far worse than the 0.5 percent drop economists had forecast in a Reuters poll and marked the steepest decline since March 2009.
Central banks elsewhere, including in China and Brazil, have eased monetary policy as their economies felt the impact of the eurozone's debt woes. But the RBI's job is complicated because inflation remains high. The central bank has raised interest rates 13 times since early 2010, a policy tightening that has hit growth but done little to counter inflation, which has been above 9 percent all year.
India's government has limited room to support the economy as it struggles to hold the reins of its fiscal deficit, which is forecast to reach 5.5 percent of GDP in the year to March 2012, 1 percentage point greater than target. Manufacturing output, which contributes about 76 percent to industrial production, fell 6 percent from a year earlier, reflecting weak demand at home and overseas.
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