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

The Reserve Bank of India has raised its policy rate by 225 basis points to 6.25 per cent since the start of the tightening cycle in April. Credit: Getty Images

India's annual industrial output contracted 4 per cent in October after growing by an upwardly revised 3.5 per cent 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 per cent in October.

The Reserve Bank of India has raised its policy rate by 225 basis points to 6.25 per cent 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 per cent of the Indian economy.

Also read | India's November retail inflation eases to 11-month low of 5.88%

Merchandise exports in October fell 16.6 per cent 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 per cent of industrial output, rose just 0.1 per cent year-on-year in October, data released by the Ministry of Commerce earlier showed.

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

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

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

Among products, the auto sector grew 12.3 per cent, but electronic goods production contracted 12.3 per cent and apparel manufacturing shrank more than 37 per cent 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 per cent, the highest in three months, while the urban unemployment rate increased to 8.96 per cent, according to Mumbai-based Centre for Monitoring Indian Economy.