Output at factories, utilities and mines rose 2.7 percent from a year earlier, the government said in a statement in New Delhi today, less than the revised 11.3 percent jump in October when the Hindu festivals of Dussehra and Diwali boosted demand for goods. The median estimate of 30 economists in a Bloomberg News survey was for a 6.6 percent gain.
Reserve Bank of India Governor Duvvuri Subbarao, facing inflationary pressures, said Jan. 7 that there are “doubts” whether the factory output data show the strength in consumption. Food prices including those of onions and milk have surged, prompting the top economic adviser to Prime Minister Manmohan Singh to call for higher borrowing costs.
“There is no reason for worry due to this data because the growth momentum is strong,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai. “Price pressures are building up and we expect the RBI to raise rates this month.”
Bond Yields
The benchmark nine-year government bond yield fell one basis point to 8.19 percent at 11:06 a.m. in Mumbai. The yield has gained 29 basis points this month on speculation Subbarao may increase rates at the Jan. 25 monetary policy announcement. That would be the seventh move in a year, the most by any central bank in Asia. The RBI’s benchmark repurchase rate is 6.25 percent.
The Bombay Stock Exchange’s Sensitive Index lost 0.3 percent in Mumbai while the rupee was little changed at 45.19 against the dollar.
“The industrial production data has been fluctuating in recent months, bewildering analysts about the underlying trend and even raising doubts about the quality of the data itself,” Subbarao said in New Delhi on Jan. 7.
India’s industrial output has vacillated since May, when it registered a 12.2 percent expansion. The growth dropped to 7.2 percent in June, rebounded to 15.1 percent in July, slid to 4.4 percent in September and then recovered in October, according to government data.
Consumer Demand
Manufacturing grew 2.3 percent in November after an 11.9 percent gain in October, today’s report showed. Consumer goods production fell 3.1 percent compared with a 9.6 percent increase in the previous month. Mining output advanced 6 percent while electricity production rose 4.6 percent.
“We wouldn’t view such a correction in the December industrial production as worrying since it is likely to largely reflect an unwinding of the sharp one-off Diwali festival jump in October plus base effects,” Robert Prior-Wandesforde, the Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG, said in a note before the release.
Finance Minister Pranab Mukherjee on Dec. 30 said India’s growth prospects are strong and raised his inflation forecast for the year through March. The inflation rate may be “around” 6.5 percent by March 31, Mukherjee said, more than the 6 percent prediction he made on Dec. 14. The rate was 7.5 percent in November.
Food Inflation
Food inflation accelerated to 18.32 percent in the week ended Dec. 25, the highest rate since July, the commerce ministry said on Jan. 6. Prices of onions, a key ingredient in the nation’s cuisine, soared 80 percent during the week and milk by 20 percent.
On Dec. 7, the finance ministry lifted its growth forecast for the current financial year to as much as 9.1 percent from a range of 8.25 percent to 8.75 percent it predicted earlier, on strengthening local demand.
Growing automobile sales and bank credit provide evidence of rising consumption in the South Asian nation.
Loans extended by lenders including ICICI Bank Ltd. gained 23.71 percent in the week to Dec. 17, the most since January 2009, according to central bank data.
Sales at Tata Motors Ltd., the nation’s biggest truckmaker and producer of the world’s cheapest car, rose 30.6 percent in December, the fastest pace in four months, the company said Jan. 4. Hero Honda Motors Ltd., which makes half the motorcycles sold in India, reported a 33.3 percent increase in sales last month from a year earlier.
Rate Forecast
Prior-Wandesforde said there are chances of the central bank boosting rates by half a point in the Jan. 25 meeting, raising his earlier forecast of a quarter-point increase.
India and China, the world’s fastest-growing major economies, are tightening their monetary policy to counter price gains. China’s central bank raised rates twice in the fourth quarter, ratcheted up banks’ reserve requirements and allowed gains by the yuan against the dollar.
Inflation has emerged as a top political issue in India.
The main opposition Bharatiya Janata Party, or BJP, will hold demonstrations and stage sit-ins in India’s major towns for a month starting Jan. 20, party spokesman Ravi Shankar Prasad said in New Delhi yesterday.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said Prime Minister Singh yesterday discussed steps to curb prices with cabinet colleagues. He didn’t elaborate. More deliberations may be held today, the Press Trust of India reported, without saying where it got the information.
“The Reserve Bank of India should watch the behavior of the prices,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in a Jan. 7 interview in Gurgaon, near New Delhi. “If prices continue to remain sticky, then probably some action will be required.”
