New Delhi: The fear of an economic slowdown has turned to be a real one, as for the first time in recent months, India's industrial economy has actually shrunk, which may lead to job cuts, high inflation and more bearish stock markets.
In fact, the Confederation of Indian Industry (CII) has warned of job losses and appealed for urgent measures to tackle the slowdown after the Index of Industrial Production fallen to minus 5.1 per cent in October.
The CII further said a lack of investments can act as a drag on growth and that a continued decline in the mining sector can have consequences on livelihoods. Economic experts say the manufacturing sector is likely to see job losses and warned that inflation will continue to stay high even as the stock markets may continue to be in bear grip.
The industrial output was 1.9 per cent in the month of September and the fall comes after a sustained slowdown over the past few months, led by a steep fall in production of almost sectors, particularly manufacturing, mining and capital goods.
The biggest fall has come in the capital goods as well as in the manufacturing sector and mining. The capital goods growth is at minus 25 per cent while manufacturing activity has declined to minus 6 per cent from 2.1 per cent a month ago.
Factory output, as measured by the Index of Industrial Production (IIP), had grown by 11.3 per cent in October 2010.
The negative growth in factory output pulled down the BSE Sensex by 343 points or 1.12 per cent on Monday to below the 16,000 level after two weeks.
The Sensex, which had lost 664 points in the past two trading sessions, fell further by 343.11 points to end the day at 15,870.35, closing below the 16k level after November 25.
The BSE 30-share benchmark has lost over 1,000 points in the last three sessions, eroding investor wealth by nearly Rs 3 lakh crore.
The broad-based National Stock Exchange index Nifty has also lost 102.10 points or 2.10 per cent to 4,764.60 on Monday.
Though, Prime Minister's Economic Advisory Council Advisor C Rangarajan hoped that the GDP growth will still be between 7-7.5 per cent, it looks hard to achieve due to lack of corrective measures on the part of the UPA Government.
With the headline inflation remained above the 9 per cent-mark since December 2010, the Reserve Bank has hiked interest rates 13 times since March, 2010, to tame inflation.
India Inc had attributed the slowdown to rising interest rates, which have led to an increase in the cost of borrowing, thus hindering fresh investment.
But for long, the political turmoil has prevented the scam-hit UPA Government from taking any major policy decisions.
Some leading industrialists at the annual Indian summit of World Economic Forum has already alleged that the Central Government has been suffering from policy paralysis.
Moreover, a combined attack by the Opposition and some its own allies forced the Government to hold back its decision on allowing FDI in retail sector, which put a big question mark on the ability of the Government to go for any further economic reforms.
As a result, it seems the crisis-hit UPA Government is in no position to infuse the confidence that needed to boost the falling economy, which is already facing turbulence due to gloomy global economic scenario.
(With additional information from agencies)
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