Bloomberg News

India Industrial Output Growth Slows; Rate Pressure Stays

June 10, 2011

(Updates with exports data in 15th paragraph.)

June 10 (Bloomberg) -- India’s industrial production growth eased in April, a slowdown that has yet to curb pressure for more interest-rate increases to damp inflation. Stocks fell.

Output at factories, utilities and mines rose 6.3 percent from a year earlier after an 8.8 percent gain in March, the Central Statistical Office said in a statement in New Delhi today, after it changed the base year to 2004-05. The median of 23 predictions in a Bloomberg News survey was for a 5.5 percent advance, based on 1993-94 prices.

Asian nations from South Korea to India are raising borrowing costs to quell price gains stoked by rising consumer demand and costlier energy. The Reserve Bank of India may boost rates by a quarter of a percentage point in its June 16 meeting, the tenth move since mid-March 2010, HSBC Holdings Plc, Nomura Holdings Inc. and Religare Capital Markets Ltd. said.

“Though we are seeing some signs of moderation, demand is still strong and needs to be curbed to subdue inflation,” said Jay Shankar, Mumbai-based chief economist at Religare Capital. He expects the central bank to lift rates by 75 basis points by the end of September.

The Bombay Stock Exchange’s Sensitive Index declined 0.6 percent at the 3:30 p.m. close. The rupee was little changed at 44.72 per dollar, and the yield on the 7.8 percent note due April 2021 slid four basis points to 8.23 percent.

Inflation Forecast

India’s benchmark wholesale-price inflation slowed to 8.66 percent in April from 9 percent in March. The price gauge may be around 8.6 percent in May, Kaushik Basu, the chief economic adviser in the finance ministry, said in New Delhi today.

Reserve Bank Governor Duvvuri Subbarao said last month the inflation rate may stay “elevated” until September and signaled he was willing to risk a slowdown in economic growth to curb prices. The central bank’s repurchase rate is 7.25 percent.

The new industrial production index released today has 682 items compared with 538 earlier reflecting “the present structure and composition of the industry,” T.C.A. Anant, the top bureaucrat in the statistics ministry, said in New Delhi today.

Manufacturing grew 6.9 percent in April from a year earlier after a 10.4 percent gain in March, today’s report showed. Mining output increased 2.2 percent and electricity rose 6.4 percent.

Slowing Growth

India’s gross domestic product rose 7.8 percent in the three months ended March 31 from a year earlier, the weakest pace in five quarters, government data show. Still, the expansion is the quickest after China among major economies, bolstered by higher incomes in the nation of 1.2 billion people.

Salaries in India in 2011 will likely rise the most in the Asia-Pacific region, a survey by Aon Hewitt LLC showed March 8. Government spending under the National Rural Employment Guarantee Act of 2005 has surged almost fourfold to 399 billion rupees ($8.9 billion), propping up demand in the countryside.

“Even though growth is showing signs of easing, demand is still holding up well,” Meghna Patel, a Mumbai-based economist at STCI Primary Dealer Ltd., said before the report. “The concern at this point is inflation.”

Sales at carmakers including Maruti Suzuki India Ltd. grew 7 percent last month from a year earlier, the Society of Indian Automobile Manufacturers said yesterday.

Phone Demand

Mobile-phone operators including Bharti Airtel Ltd. added 11.42 million new customers in April, a 2 percent increase from the previous month, according to the Cellular Operators Association of India.

India’s exports climbed 57 percent to $25.9 billion in May from a year earlier, trade secretary Rahul Khullar said in New Delhi today. Imports gained 54.1 percent to $40.9 billion.

The government’s focus should be to bring down the inflation rate to a range of 4 percent to 5 percent, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said June 2 as he urged policy makers to use all monetary and fiscal tools.

The Bank of Korea today raised rates for a third time this year. Thailand has increased borrowing costs four times since Jan. 1, while the Philippine central bank boosted the rate it pays lenders for overnight deposits to 4.5 percent in May.

Inflation in India may accelerate as economists expect food costs to rise after the government increased the prices it pays farmers for food grains and oilseeds. The federal government sets the crop prices to assure farmers’ incomes, while selling subsidized grains and cooking oils to the poor.

The inflation rate may surge to 9 percent in May, according to Anand Rathi Financial Services Ltd. and STCI Primary Dealer, after refiners including Indian Oil Corp., the nation’s biggest, lifted gasoline prices by as much as 8.5 percent, the biggest rise in three years.

“Given the inflation pressures, a quarter-point increase in interest rates next week is a done deal,” Madan Sabnavis, chief economist at Mumbai-based CARE Ratings, said before the report.

--With assistance from Manish Modi, Unni Krishnan, Tuhin Kar and Tushar Dhara in New Delhi. Editors: Cherian Thomas, Sam Nagarajan

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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