India’s Oct industrial output contracts as rising rates start biting

NEW DELHI: India’s annual industrial output contracted 4% in October after growing by an upwardly revised 3.5% in the previous month, data released on Monday showed, as rising interest rates and slowing global demand dampened consumer demand.

Analysts polled by Reuters had expected expansion of 0.3% in October.

The Reserve Bank of India has raised its policy rate by 225 basis points to 6.25% since the start of the tightening cycle in April, as it battles to contain inflation.

Sluggish rural spending and rising borrowing costs have started hitting consumer demand for durables and impacted manufacturing, which accounts for about 16% of the Indian economy.

Merchandise exports in October fell 16.6% to $29.78 billion from a year earlier as exporters of engineering, textile and agricultural goods faced declines in global demand and prices.

Infrastructure output, which comprises eight sectors including coal and electricity accounting for nearly 40% of industrial output, rose just 0.1% year-on-year in October, data released by the Ministry of Commerce earlier showed.

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Industrial output growth in Asia’s third largest economy has sharply slowed, expanding 5.3% during the April to October period compared to 20.5% a year before.

In October, manufacturing contracted 5.6% year-on-year compared to a 2.2% expansion in the previous month, data released by the Ministry of Statistics on Monday showed.

Mining output rose 2.5%. Consumer durables output shrank more than 15% in the same month, data showed.

Among products, the auto sector grew 12.3%, but electronic goods production contracted 12.3% and apparel manufacturing shrank more than 37% in the same period.

Analysts warned that slowing factory output could hit jobs as well.

In November, India’s unemployment rate rose to 8.0%, the highest in three months, while the urban unemployment rate increased to 8.96%, according to Mumbai-based Centre for Monitoring Indian Economy.