India's industrial output grew by a worse-than-expected two percent in April, official data showed on Wednesday, suggesting that the recovery of Asia's third-largest economy remains elusive.
The two percent year-on-year output growth of India's factories, mines and utilities undershot market expectations of a 2.4 percent rise and was down from an upwardly revised 3.4 percent jump the previous month.
The numbers dismayed business with the Associated Chambers of Commerce and Industry of India branding them "pathetic" and the Confederation of Indian Industry (CII) saying they indicated "no sign of a sustained recovery".
There is an "urgent need" for the government to kickstart growth-promoting investment by accelerating project clearances and reducing energy shortages, CII chief Chandrijit Banerjee said.
Despite the weak output, the central bank was unlikely to cut interest rates further to kickstart the economy, with the Indian rupee hovering at just above lifetime lows and retail price inflation still stubbornly elevated at a higher-than-forecast 9.3 percent, separate figures showed.
"The combination of a downside surprise on industrial production and upside surprise on consumer price inflation is not exactly what one would have liked to have seen," said CLSA economist Robert Prior-Wandesforde.
"With the rupee under significant depreciation pressure and no sign of an improving trade position, a rate cut at the central bank's 17th June meeting now looks a very long shot indeed," he added.
Any rate reduction could push the rupee lower against the dollar, making it tougher for India to fund its ballooning current account deficit -- the broadest measure of trade -- with its imports outdistancing exports.
Nomura economist Sonal Varma also said she expected no rate cut at the central bank's June 17 meeting "given the sticky consumer price inflation and difficulties in financing the current account deficit".
The rupee, which has depreciated by six percent over the past month, was trading at 58.20 rupees to the dollar after central bank intervention Tuesday lifted it from a record low of 58.98.
The Mumbai's benchmark 30-share Sensex was down nearly half a percentage point at 19,067.84 points following the data after being in positive territory in early trade.
The output figures were more grim reading for Prime Minister Manmohan Singh's Congress-led government which is anxious for signs of a growth turnaround before fighting elections due in the first half of 2014.
Output growth is still far below double-digit rates in previous years when India's economy was booming.
The economy has been struggling under the weight of high interest rates, uncomfortably strong consumer inflation and weak domestic and foreign investment, as well as a string of corruption scandals.
The scandals have stalled the government's economic reform agenda after a blitz of liberalisation initiatives last year. While the central bank has cut rates three times since the start of the year following an aggressive hiking spree, borrowing costs remain high.
Manufacturing, which accounts for three-quarters of the Index of Industrial Production, grew 2.8 percent in April year-on-year, down sharply from 4.2 growth in March.
Capital goods output of machinery and other products, seen as a key sign of corporate investment intentions, rose just 1.0 percent after climbing nine percent in March.
The government forecasts the economy will grow by at least six percent in the financial year that began April 1, after expanding by five percent last year -- its slowest pace in a decade.
But Nomura's Varma said she expected the economy to expand by just 5.6 percent as tepid demand prompts firms to cut production to prune inventories.
Car sales slid by over 12 percent last month from a year ago, according to industry figures on Tuesday, as steep borrowing costs and consumer worry about the economy put the brakes on discretionary spending.
Industrial output is also sluggish, experts say, due to bottlenecks caused by India's dilapidated highways, ports, power shortages and other infrastructure problems that restrains expansion.