Bloomberg News

India Factory Output Missing Estimates Adds to Rate-Cut Case

June 12, 2012

India’s Industrial Production Rose Less Than Estimated in April

Workers assemble caps and test the glow of burners of Bajaj Electricals Ltd. capsule light bulbs at the Starlite Lighting Ltd. factory in Nasik, Maharashtra state, India. Photographer: Kuni Takahashi/Bloomberg

Indian industrial production rose less than estimated in April, adding to the case for an interest-rate cut to bolster a weakening economy.

Production at factories, utilities and mines increased 0.1 percent from a year earlier, after a revised 3.2 percent drop in March, the Central Statistical Office said in a statement in New Delhi today. The median of 37 estimates in a Bloomberg News survey was for a 1.7 percent climb.

The Reserve Bank of India announces its rate decision on June 18, with pressure building on Governor Duvvuri Subbarao to lower borrowing costs for the second time in 2012 even as inflation exceeds 7 percent. Asia’s third-largest economy grew at the slowest pace in almost a decade last quarter, hurt by a stumbling global recovery and political gridlock that has deterred investment.

“It’s a very anemic number and there are not too many reasons to be optimistic about a quick rebound any time soon,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. The central bank is facing a “difficult situation” and will probably reduce its repurchase rate to 7.75 percent from 8 percent next week.

The rupee has slumped about 20 percent against the dollar in the past year, in part because Europe’s debt crisis has sapped demand for emerging-market assets. The currency fell 0.5 percent to 56.0238 per dollar as of 12:03 p.m. local time, while the BSE India Sensitive Index rose 0.1 percent. The yield on the 8.79 percent bond due November 2021 declined three basis points, or 0.03 percentage point, to 8.30 percent.

S&P Warning

India may become the first nation in the so-called BRIC group of biggest emerging markets to lose its investment-grade credit rating, Standard & Poor’s said yesterday, citing slowing economic expansion and roadblocks to economic policy making. Brazil, Russia and China are the other BRIC countries.

Indian gross domestic product rose 5.3 percent last quarter from a year earlier, the weakest pace since 2003. Prime Minister Manmohan Singh’s government also faces a trade deficit that reached a record $184.9 billion in the year ended March, the widest BRIC budget shortfall and the group’s fastest inflation.

Singh’s efforts to liberalize the economy have met with opposition from within the ruling coalition. The Cabinet last week deferred making a decision on whether to allow foreign direct investment in the pension fund industry. India has also foregone potential investment from overseas insurers and retailers such as Wal-Mart Stores Inc. in recent months.

Interest-Rate Decision

Mining fell 3.1 percent in April from a year earlier after a 1.3 percent drop in March, today’s data showed. Manufacturing grew 0.1 percent, compared with a decline of 4 percent in the previous month. Electricity output rose 4.6 percent.

Subbarao will reduce the repurchase rate to 7.75 percent next week, according to 11 of 15 economists in a Bloomberg News survey. Two expect a half-point cut to 7.5 percent and the rest no change. Inflation climbed to a five-month high of 7.5 percent in May, the median estimate in another Bloomberg survey shows.

Some companies have felt the impact of slower growth and inflationary pressures. Car sales fell in May at Maruti Suzuki India Ltd., and the Indian units of Ford Motor Co. and General Motors Co., after an increase in gasoline prices.

The Reserve Bank lowered its benchmark rate to 8 percent from 8.5 percent on April 17, the first cut since 2009, after raising it by a record 3.75 percentage points from mid-March 2010 to October last year to try and contain inflation.

On June 6, Singh vowed to revitalize growth as he outlined projects including new ports, roads and power plants and urged officials to bridge differences impeding progress.

“It’s good that the government has announced some measures but they may not be sufficient,” said N. R. Bhanumurthy, a New Delhi-based economist at the National Institute for Public Finance and Policy. “What are needed are big economic reforms. Interest rates alone won’t help.”

To contact the reporter on this story: Kartik Goyal in Mumbai at

To contact the editor responsible for this story: Stephanie Phang at

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