India’s Industrial Production Rises for Seventh Month (Update1)
By Kartik Goyal
Sept. 11 (Bloomberg) -- India’s industrial production increased for a seventh straight month as higher government spending and lower borrowing costs stoked demand for cars, motorbikes and other consumer goods.
Output at factories, utilities and mines rose 6.8 percent in July from a year earlier, less than the 7.0 percent median forecast in a Bloomberg News survey of 20 economists. Indian stocks fell today after the statistics agency revised June’s increase to 8.2 percent from 7.8 percent, indicating a bigger than expected slowdown in July.
Record-low interest rates and tax cuts are providing stimulus which policy makers estimate are worth more than 12 percent of gross domestic product, reviving demand for cars made by Maruti Suzuki India Ltd. and Hyundai Motor Co. The prospect of faster growth and rising disposable incomes is attracting companies such as Harley-Davidson Inc., the biggest U.S. motorcycle maker, to set up operations in India.
“Industrial growth will trend higher as the full impact of the various monetary and fiscal stimulus actions come through,” said Robert Prior-Wandesforde, senior Asian economist at HSBC Holdings Plc in Singapore. “Export growth is likely to move higher from here on due to the improving global trade cycle.”
India’s exports fell the least in eight months in August as overseas sales of coal, rice and tobacco picked up, the government said yesterday. Shipments dropped 19.7 percent from a year earlier. Foreign direct investment jumped 56 percent to $3.5 billion in July, according to Trade Minister Anand Sharma.
Stocks Fall
The Bombay Stock Exchange’s benchmark Sensitive Index declined as much as 0.2 percent and bond yields fell as output growth missed economists’ expectations. The yield on the 6.90 percent note due July 2019 dropped to 7.44 percent from 7.45 percent before the report, according to the central bank’s trading system. The currency was little changed.
Manufacturing is beginning to recover across Asia as government stimulus worth about $1 trillion boosts demand and the global recession eases. China’s industrial output gained 12.3 percent in August, a report said today. Malaysia’s industrial output dropped the least in eight months in July.
The Reserve Bank of India cut interest rates six times from October 2008 to April 2009 to enable the lenders to lower loan rates for cars and homes. Governor Duvvuri Subbarao on July 28 left the reverse-repurchase rate unchanged at 3.25 percent and kept the repurchase rate at 4.75 percent.
Cars, Motorcycles
Cheaper loans are boosting sales of cars and motor bikes. Maruti Suzuki’s sales surged 42 percent in August to 84,808 vehicles and Hero Honda Motors Ltd. said it sold 36 percent more bikes in the same month. General Motors Corp. and Toyota Motor Corp. are among carmakers increasing bets on India, China and other emerging markets as auto sales in the U.S., Japan and Europe tumble.
Ford Motor Co., the second-largest U.S. automaker, said Sept. 3 it plans to start producing a small car in India next year, while Harley-Davidson, the biggest U.S. motorcycle maker, said Aug. 27 it plans to start sales in India from 2010.
Manufacturing, accounting for about 80 percent of the production basket, rose 6.8 percent in July from a year earlier, compared with 8.2 percent growth in June, today’s report released in New Delhi showed. Consumer goods production, including cars, refrigerators, air conditioners and others advanced 8.8 percent, compared with a 4.4 percent gain in June.
‘Attractive’ Destination
“India continues to remain an attractive investment destination” and we see foreign investment rising this year, Trade Minister Sharma said yesterday after Cabinet approved setting up a company with the Federation of Indian Chambers of Commerce and Industry to encourage overseas investors.
Still, the weakest monsoon in seven years has raised concerns that a shortage of rain may cut farm output and erode incomes of the 742 million Indians who live in the countryside, damaging an economy already forecast by the central bank to expand at the slowest pace in seven years.
India’s economic expansion may slow this quarter and next as a shortage of rain reduces harvests, Finance Minister Pranab Mukherjee said Sept. 7. The government is “doubtful” the 6.1 percent pace of growth reported in the three months to June 30 will be maintained, he said.
“While we see a gradual thaw in the winter of economic crisis and the early green shoots of economic recovery, the situation is still far from normal,” Mukherjee said Sept. 8.
Rainfall this year may be 15-to-20 percent less than the country’s 50-year average, the India Meteorological Department said Sept. 7.
“Drought is of course the major short-term risk, although the impact of falling agricultural output on consumer spending is likely to be countered by the government’s actions to support the incomes of the rural and urban poor,” said Prior- Wandesforde of HSBC.
bloomberg.com |
