India Factory Output Rises Most Since at Least 1994 (Update3)
By Kartik Goyal
Feb. 12 (Bloomberg) -- India’s industrial production rose in December at the fastest pace in 16 years, strengthening the case for Finance Minister Pranab Mukherjee to withdraw stimulus.
Output at factories, utilities and mines jumped 16.8 percent from a year earlier after gaining 11.8 percent in November, the statistics department said in New Delhi today. That was the biggest rise since at least April 1994, according to Bloomberg data, and beat analysts’ expectations of a 12.4 percent increase.
Consensus is building within the government to raise taxes in the Feb. 26 budget with Montek Singh Ahluwalia and Chakravarthy Rangarajan, the two top economic advisers to Prime Minister Manmohan Singh, indicating the need for fiscal stimulus to be rolled back. The statistics department said Feb. 8 the economy may accelerate this year for the first time since 2007.
“The economy doesn’t need the crutches of stimulus anymore,” Dharmakirti Joshi, an economist at Crisil Ltd., the Indian unit of Standard & Poor’s, said in an interview in Mumbai. “Controlling inflation and the budget deficit will be the challenge now.”
Manufacturing in December increased 18.5 percent, mining output climbed 9.5 percent while electricity production gained 5.4 percent, today’s report showed.
India’s stock, bond and currency markets are closed today on account of a Hindu festival.
Remove Support
India’s central bank Governor Duvvuri Subbarao on Jan. 29 called on the finance ministry to start removing fiscal support, citing strong consumer demand, an unsustainable budget deficit level, and accelerating inflation. Subbarao started withdrawing monetary stimulus by increasing the proportion of deposits that lenders need to keep as reserves to 5.75 percent from 5 percent.
Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, told Bloomberg News on Feb. 9 that a “combination” of steps will be taken in the budget to cut the deficit, declining to elaborate.
India’s budget shortfall is forecast at 6.8 percent of gross domestic product for the fiscal year ending March 31, the biggest in 16 years, as the government cut excise and customs taxes and stepped up spending to protect India’s $1.2 trillion economy from the global recession.
Rising sales by local companies indicate the stimulus has paid off.
Successful Stimulus
Automobile companies including Maruti Suzuki India Ltd., India’s biggest maker of cars, and the Indian unit of South Korea’s Hyundai Motor Co. sold 145,905 cars in January, the highest monthly sales since at least 1950, the Society of Indian Automobile Manufacturers said Feb. 9.
An index of manufacturing output compiled by HSBC Holdings Plc and Markit Economics rose to 57.6 last month, the fastest pace in 17 months. The economy may expand 7.2 percent in the fiscal year to March 31, the statistics department said Feb. 8.
“It has been my consistent view that if it looks as if the economy is back on a 7 percent-plus growth path, which it now clearly is, yes we should say the stimulus has succeeded and then we should begin to phase it down,” Ahluwalia said Feb. 8.
After arresting an economic slowdown, India and China, where industrial output rose 18.5 percent in December, are facing inflation and asset bubbles stoked by the stimulus.
The International Monetary Fund said last week that Indian policy makers should gradually roll back the stimulus.
Manufacturing inflation in India surged to 5.2 percent in December from 1.6 percent in October, forcing Subbarao last month to raise the inflation forecast in the country to 8.5 percent by March 31 from 6.5 percent.
“As growth starts to pick up, authorities must decide when and how fast to withdraw stimulus support,” said Bodhi Ganguly, an economist at Moody’s Economy.com in Sydney. “Withdrawal of the stimulus should be gradual.”
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