India’s Industrial Output Growth Quickens to 8.8%, Weathering Higher Rates

By Kartik Goyal - Aug 12, 2011

India’s industrial production grew at the quickest pace in three months in June, weathering the fastest interest-rate increases among Asia’s major economies.

Output at factories, utilities and mines rose 8.8 percent from a year earlier, following a revised 5.9 percent gain in May, the Central Statistical Office said in a statement in New Delhi today. The median of 23 estimates in a Bloomberg News survey was for a 5.5 percent advance.

Reserve Bank of India Governor Duvvuri Subbarao, whose term was extended by two years on Aug. 9, has to weigh the risks to expansion posed by Europe’s debt crisis and a faltering U.S. recovery after tightening monetary policy to slow inflation. Asian central banks from South Korea to Indonesia kept borrowing costs unchanged this week as they assess the global economy.

“The Indian central bank’s job has become even more challenging at this juncture,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the report. “The RBI has to control inflation at a time when the global economic turmoil poses risks to growth.”

The Bombay Stock Exchange Sensitive Index was little changed at 17,052.10 at 11:12 a.m. in Mumbai. The rupee gained 0.1 percent to 45.34 per dollar, and the yield on the 7.80 percent bond due April 2021 held at 8.26 percent.
Inflation Forecast

India’s benchmark wholesale-price inflation in July will probably be 9.2 percent, according to the median estimate in a Bloomberg News survey, staying above 9 percent for eight straight months. The commerce ministry will release the data on Aug. 16.

The Reserve Bank has increased borrowing costs 11 times since mid-March 2010. Its repurchase rate is 8 percent.

Inflation is a political issue in India as it erodes spending power in a nation where the World Bank estimates more than three-quarters of the population live on less than $2 a day.

Steel and cement production, and an expansion in bank loans in India, show demand pressures are growing, stoking prices.

Steel output by companies including Tata Steel Ltd. rose 12.5 percent in June from a year earlier, compared with a 6.1 percent gain in May, according to the commerce ministry. Cement production rose 0.8 percent after a 2.3 percent decline in May, the ministry said.
Bank Loans

Commercial loans given by lenders such as ICICI Bank Ltd. (ICICIBC), the nation’s biggest private lender, jumped 19.33 percent in the 12 months to July 15, exceeding the central bank’s 18 percent projection, according to Reserve Bank data.

Concerns that the global economy will slow wiped more than $8 trillion of stocks worldwide between July 22 and Aug. 8, according to data compiled by Bloomberg.

Finance ministers and central bankers from the Group of Seven nations, which include the U.S., U.K. and Germany, said in a statement on Aug. 8 that they will “take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.”

India’s central bank said Aug. 8 that while “downside risks” to India’s expansion may have increased amid weakness in the global economy, “they are likely to have limited impact.”

Finance Minister Pranab Mukherjee said Aug. 6 that India’s challenge is to tame inflation.

The Reserve Bank last month maintained its growth forecast of 8 percent for the current fiscal year ending March 31. The economy expanded 8.5 percent the previous year.

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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