India’s Industrial Output Growth Beats Estimates, Spurring Sensex Advance

India’s Industrial Output Rises at Fastest Pace in Seven Months
By Kartik Goyal - Mar 12, 2012

India’s industrial production rose at the fastest pace in seven months in January, weathering the highest interest rates since 2008 and weaker global growth.

Output at factories, utilities and mines advanced 6.8 percent from a year earlier, after a revised 2.5 percent climb in December, the Central Statistical Office said in a statement in New Delhi today. The figure exceeded all 26 estimates in a Bloomberg News survey.

The gain signals production is withstanding the impact of the elevated cost of credit on domestic demand and the fallout for exports from Europe’s debt crisis. India’s central bank, which moved to inject cash into the economy last week and reviews rates on March 15, has signaled readiness to join nations from Brazil to the Philippines in cutting borrowing costs as inflation eases.

“Notwithstanding today’s data, which has been quite volatile, growth is likely to remain weak in the coming quarters,” said N.R. Bhanumurthy, a New-Delhi based economist at the National Institute of Public Finance and Policy. “The RBI will be watching inflation data more closely to decide on its rate moves.”

The rupee weakened 0.2 percent to 49.9775 per dollar at 11:10 a.m. local time. It has rebounded 6.2 percent so far in 2012 after sliding 16 percent last year, the worst fall in Asia. The BSE India Sensitive Index rose 0.7 percent. The yield on the 8.79 percent note due November 2021 rose three basis points, or 0.03 percentage point, to 8.29 percent after the report.
Deteriorating Outlook

Policy gridlock and fiscal and trade deficits have fanned concern that the outlook for Asia’s third-largest economy is deteriorating.

Finance Minister Pranab Mukherjee presents the budget for the year through March 2013 the day after the Reserve Bank of India assesses rates. The central bank has signaled steps to tackle price pressures by paring the fiscal gap can boost its scope to cut borrowing costs.

India’s gross domestic product rose 6.1 percent last quarter from a year earlier, the slowest pace since 2009. It climbed 8.4 percent in each of the last two fiscal years.

The Reserve Bank raised its repurchase rate by a record 3.75 percentage points from March 2010 to October 2011, to 8.5 percent, to restrain the cost of living in a nation where more than two-thirds of the population live on less than $2 per day.
Easing Inflation

Inflation held at close to the lowest level in 26 months in February, with the wholesale-price index gaining 6.7 percent from a year earlier, according to a Bloomberg survey.

That would still be the fastest pace in the so-called BRIC group of economies that also includes Brazil, Russia and China. This year’s 17 percent climb in the price of Brent crude oil, the benchmark for almost all of India’s imports, threatens to spur price rises.

“Growth is slowing and at the same time there are fresh risks to inflation from rising crude oil prices,” said Radhika Rao, an economist at Forecast Pte in Singapore.

Steel production by companies including Tata Steel Ltd., India’s biggest producer of the alloy, declined 2.9 percent in January from a year earlier, compared with an 8.7 percent gain in December, according to commerce ministry data. Electricity output gained 2.4 percent, easing from an 8.9 percent pace.

The Reserve Bank reduced the amount of deposits lenders need to set aside as reserves on March 9, to 4.75 percent from 5.5 percent, saying the cut will add 480 billion rupees ($9.6 billion) into lenders. The bank last reduced the ratio on Jan. 24, by 0.5 percentage point, as it strives to ease a cash squeeze.

Indian officials are under pressure to revive growth. Prime Minister Manmohan Singh is trying to preserve an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies. Singh’s ruling Congress party was recently routed in regional elections.

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

To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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