Industrial Output in India Grew 13.5% in March, Stoking Inflation Pressure

India’s industrial production grew more than 10 percent for a sixth straight month, adding to inflation pressures even as Europe’s debt crisis threatens to undermine the global economic recovery.

Output at factories, utilities and mines rose 13.5 percent in March from a year earlier after gaining 15.1 percent in February, the statistics department said in a statement in New Delhi today. The median estimate of 24 economists in a Bloomberg News survey was for a 15.1 percent increase.

India’s figures come a day after China said its industrial output grew 17.8 percent in April, highlighting the challenge the world’s fastest-growing major economies face in containing inflation while keeping an eye on the dangers posed by Europe. Reserve Bank of India Governor Duvvuri Subbarao has said he plans to raise interest rates in a “calibrated” way, given the risks to global growth.

“The developments in Europe have vindicated the RBI’s approach of gradualism in monetary tightening, something which economists like us were worried about as growth had recovered very strongly in the Indian economy,” said Mridul Saggar, a Mumbai-based economist at Kotak Securities Ltd. “We still expect a further rate hike of 25 basis points or more in July.”

European policy makers on May 10 unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to contain a sovereign-debt crisis emanating from Greece. The rescue program comes after a 110 billion-euro aid package for Greece and would be used for countries like Portugal or Spain in case their finances buckle.

Limited Impact

While the developments in Europe may have limited impact on India, policy makers are carefully monitoring the situation, Commerce and Industry Minister Anand Sharma said May 10.

Subbarao on April 20 raised the central bank’s benchmark interest rates by a quarter percentage point for the second time in a month, increasing the reverse repurchase rate to 3.75 percent and the repurchase rate to 5.25 percent. The next monetary policy statement is scheduled for release on July 27.

Inflation pressures are also building up in other parts of Asia as the region rebounds from the global recession.

In China, consumer prices climbed at the fastest pace in 18 months in April, adding pressure on policy makers to raise interest rates and allow yuan gains.

Malaysia’s economy probably grew the most since 2000 in the first quarter, an acceleration that may convince the central bank to raise interest rates tomorrow even in the aftermath of Europe’s debt crisis, surveys of economists showed.

Manufacturing Slowed

India’s industrial output growth slowed in March as manufacturing expanded 14.3 percent compared with a 16.1 percent gain in the previous month, today’s report showed, without giving any reason. Mining grew 11 percent in March, while electricity production rose 7.7 percent.

The benchmark 10-year bond yield fell four basis points to 7.57 percent as of 12:40 p.m. in Mumbai, according to data compiled by Bloomberg. The Sensitive Index fell 0.4 percent to 17,068.72 on the Bombay Stock Exchange while the rupee was little changed at 45.28 per dollar.

Factory output is gaining strength in India as wages rise, spurring demand for houses and cars. Salaries in India may grow at the fastest pace in the Asia Pacific this year, according to Hewitt Associates Inc., the Lincolnshire, Illinois-based human resources adviser.

Cement, Cars

Cement production by companies including ACC Ltd., India’s biggest cement maker, gained 10.1 percent in March, the government said on April 27. Sales at car companies such as Maruti Suzuki India Ltd. and Tata Motors Ltd. climbed 39.5 percent in April from a year earlier.

India’s $1.2 trillion economy may have grown 8.6 percent last quarter, the fastest pace in more than two years, Kaushik Basu, the chief economic adviser in the finance ministry, said on May 4.

Faster economic expansion has helped the stock index gain more than 40 percent in the past year, and the rupee rise 8.5 percent during the period. The 10-year government bond yield has advanced 39 basis points since Jan. 1 as demand outstrips supply, stoking inflation.

Prime Minister Manmohan Singh’s coalition is under pressure to control rising prices. Inflation provoked opposition parties including the Bharatiya Janata Party to move a motion in parliament this month, challenging the government to prove its majority. Singh defeated the motion after receiving support from regional parties.