Industrial Production Increases 7.1% in India, Slowest Pace in 13 Months
By Kartik Goyal and Unni Krishnan - Aug 12, 2010 5:14 AM PT
bloomberg.com
India’s industrial production rose at the slowest pace in 13 months in June, adding to evidence that Asian economies are weakening.
Output at factories, utilities and mines rose 7.1 percent after a revised 11.3 percent gain in May from a year earlier, the statistics department said in New Delhi. The expansion was less than the estimates of all but two of 21 economists in a Bloomberg News survey.
China reported weaker factory output data yesterday and the Federal Reserve reversed plans to exit from its aggressive monetary stimulus, providing further signs that the global economic recovery is slowing. The data complicates Governor Duvvuri Subbarao’s efforts to tackle inflation by raising interest rates.
“The magnitude of rate hikes may moderate,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. She expects the central bank to raise rates by another 50 basis points in the year ending March 31, less than her earlier forecast of 75 basis points, given the emerging “macroeconomic picture” in India.
Ten-year government bond yields advanced two basis points to 7.83 percent at the 5 p.m. close in Mumbai after declining as much as five basis points earlier in the day. The Bombay Stock Exchange’s Sensitive Index was little changed at 18,073.90. The rupee fell 0.2 percent to 46.77 against the dollar.
Demand ‘Build-up’
Subbarao on July 27 raised rates for the fourth time in five months, boosting the reverse repurchase rate by half a percentage point to 4.5 percent and the repurchase rate to 5.75 percent from 5.5 percent. Last week, the governor said India needs more monetary policy action, citing a “build-up” in demand-side pressures.
The benchmark wholesale-price inflation may stay above 10 percent for a sixth month in July, according to the median forecast of 13 economists in a Bloomberg survey. The government will release the data on Aug. 16.
China’s industrial production rose 13.4 percent in July from a year earlier, the weakest pace in 11 months, adding to signs that a slowdown in the world’s third-biggest economy is deepening. China is the only major economy in Asia that is growing faster than India.
The Fed on Aug. 11 decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated.
Base Effect
June’s production number in India may also have been affected by the comparison with a year earlier when output jumped as the economy rebounded from the global financial crisis. Industrial output climbed 8.3 percent in June 2009 from a year earlier after a 2.1 percent expansion in May, according to government data.
“The main reason for India’s slower industrial production growth in June is the base effect,” Siddhartha Sanyal, an economist at Mumbai-based Edelweiss Capital Ltd., said before the report. “We are seeing a decent, strong rate of growth in the economy.”
India’s electricity production rose 3.4 percent in June 2010 from a year earlier compared with a 6.4 percent gain in May, the commerce ministry said in a statement on July 28 without giving any reason. Cement output growth slowed to 3.6 percent from 8.6 percent in May while production of refinery products rose 2.9 percent in June, according to the statement.
Manufacturing, which accounts for 79 percent of the industrial production index, rose 7.3 percent in June from a year earlier after a 12 percent gain in May, according to today’s report. Mining output gained 9.5 percent from 10.1 percent during the period.
Expected Outcome
“We did expect that industrial growth would decelerate,” Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, told reporters in New Delhi. “I would not conclude from the June figures that this would be the trend for the rest of the year.”
Industrial output may recover in July as manufacturing growth accelerated in the month, according to the Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics. The index rose to 57.6 from 57.3 in June.
“The industrial sector is still running red hot,” Frederic Neumann, a Hong Kong-based economist at HSBC Holdings, said in a statement on Aug. 2. “Input and output price pressures have picked up again, and recent hikes notwithstanding, the RBI is nowhere done.”
Bank lending to companies and individuals grew more than 21 percent in the year through July, the fastest pace since January 2008, signaling rising demand in the South Asian nation.
Automobile sales are also surging. Tata Motors Ltd., India’s biggest truck maker, reported sales in July climbed 41 percent, while motorcycle maker TVS Motor Co. said its sales grew 35 percent.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at Ukrishnan2@bloomberg.net |
