India’s Industrial Output Rises Less Than Estimated

By Kartik Goyal - Apr 12, 2012

Indian industrial production rose less than estimated in February as weaker overseas demand and the highest interest rates since 2008 curbed output.

Production (INPIINDY) at factories, utilities and mines advanced 4.1 percent from a year earlier, compared with a revised 1.1 percent gain in January, the Central Statistical Office said in a statement in New Delhi today. The median of 36 estimates in a Bloomberg News survey was for a 6.7 percent gain.

The Reserve Bank of India, which reviews policy on April 17, has signaled readiness to lower borrowing costs to bolster domestic spending and counter export threats from easing Chinese expansion, slower U.S. jobs growth and Europe’s debt crisis. At the same time, the monetary authority has flagged inflation risks from oil prices, a weaker rupee and government spending.

“The direction of monetary policy is towards easing due to softness in growth and inflation,” Killol Pandya, the Mumbai- based head of fixed-income investment at the local unit of Daiwa Asset Management Co., said before the report. Still, the Reserve Bank will be wary of reducing rates too soon, Pandya said.

Indian inflation cooled to 6.65 percent last month from 6.95 percent in February, holding near a 26-month low, according to another Bloomberg survey ahead of data due April 16.

The Reserve Bank raised its benchmark repurchase rate by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent, seeking to quell price pressures.

While it kept the measure unchanged for a third meeting in March, the monetary authority has reduced the amount lenders need to set aside as reserves twice in 2012 to ease a cash squeeze threatening growth.
Interest-Rate Outlook

The central bank is set to reduce borrowing costs by as much as 1 percentage point in the financial year through March 2013, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. Rate actions will be based on whether current inflation levels are sustainable and the credibility of efforts to curb the fiscal deficit, he said.

Emerging markets from Brazil to the Philippines have lowered rates in recent months to shield expansion as Europe’s sovereign-debt woes cloud the global outlook.

Government estimates show Asia’s third-largest economy expanded 6.9 percent in the year through March 2012, the least in three years, as costlier credit hampered investment. China’s economy probably expanded 8.4 percent in the first quarter, the slowest pace in almost three years, setting the stage for monetary loosening, a Bloomberg survey showed.
Singh’s Challenge

Prime Minister Manmohan Singh’s government is facing one of the most challenging periods since taking office in 2004, as fiscal and current-account deficits threaten to hamper growth.

In the annual budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013. The current-account gap was $19.6 billion in the three months through December, the worst quarterly performance on record.

Allegations of graft against officials and policy reversals have further hindered Singh’s economic agenda. Among the setbacks was the suspension in December of plans to open India’s retail industry to foreign companies such as Wal-Mart Stores Inc.

Trade organizations have said businesses around the world are re-evaluating investments in India due to uncertainty over the nation’s tax laws following changes announced in the budget.

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

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