SG:India Industrial Output Grows at Fastest Pace in Five Months
(Updates with manufacturing growth in sixth paragraph.)
May 12 (Bloomberg) -- India's industrial production grew at the fastest pace in five months, underscoring the central bank's concerns that consumer demand is stoking inflation. Bond yields rose and the rupee pared losses.
Output at factories, utilities and mines rose 7.3 percent in March from a year earlier after a revised 3.7 percent gain in February, the commerce ministry said in a statement in New Delhi today. The median estimate of 30 economists in a Bloomberg News survey was for a 4 percent increase.
The Reserve Bank of India last week boosted interest rates for the ninth time in 15 months to damp price gains that are the highest among Asia's major economies. The International Monetary Fund, Goldman Sachs Group Inc. and Credit Suisse Group AG expect India's expansion to ease this year because of monetary tightening.
"The RBI is focused at the moment on curbing demand to stem inflation," Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore, said before the report. "Rising rates will ease demand and slow growth."
The yield on the 7.8 percent note due April 2021 rose two basis points to 8.27 percent as of 11:05 a.m. in Mumbai. The Bombay Stock Exchange's Sensitive Index slid 0.1 percent while the rupee strengthened 0.2 percent to 44.76 against the dollar.
Manufacturing Surge
Manufacturing climbed 7.9 percent in March from a year earlier compared with a 3.6 percent gain in February, today's report showed. Mining output increased 0.2 percent and electricity advanced 7.2 percent.
Governor Duvvuri Subbarao's half a percentage point increase in the central bank's repurchase rate to 7.25 percent on May 3 was the biggest move since July 2008, as he forecast price gains to stay at an "elevated level" until September.
India's benchmark wholesale-price inflation accelerated to 8.98 percent in March, overshooting the central bank's 8 percent estimate. The price gauge may cool to 8.4 percent in April, according to the median forecast of 11 economists in a Bloomberg survey ahead of an announcement scheduled for May 16.
By comparison, consumer prices rose 5.3 percent in China and 4.2 percent in South Korea.
Rate increases in India will slow growth this year and help ease inflation to 6 percent "with an upward bias" by March 31, 2012, Subbarao said. India's economy may expand "around 8 percent" in the year through March from 8.6 percent in the previous 12 months, he estimated.
Growth Forecast
Asia's third-biggest economy may grow 8.2 percent in 2011 from 10.4 percent in the prior 12 months, the IMF said April 28. Goldman Sachs cut its gross domestic product expansion forecast to 7.8 percent for the fiscal year ending March 31, 2012, from 8.7 percent while Credit Suisse lowered it to 7.5 percent from 7.7 percent.
For now, indicators such as the purchasing managers' index and credit expansion signal consumer demand is holding up.
Manufacturing output grew in April at the fastest pace in five months, according to the PMI data released by HSBC Holdings Plc and Markit Economics. Commercial credit given by lenders including ICICI Bank Ltd., the nation's biggest private bank, rose 22 percent from the previous year as of April 22, more than the 19 percent rate prescribed by the Reserve Bank.
New Index
India plans to unveil a new industrial output index in June that will use a different base year and have about 400 items, up from the 283 in the current index, to give a more "realistic picture" of industrial output, M.C. Singhi, a senior economic adviser at the Department of Industrial Policy and Planning in New Delhi, said in a May 11 interview.
"The underlying growth is quite robust and the main worry at this point in time is inflation fueled by strong demand," Rupa Rege Nitsure, a Mumbai-based economist at Bank of Baroda, said before the report. She expects the central bank to boost rates by another 75 basis points by March 31.
Inflation will accelerate further as the government raises fuel prices, said Jay Shankar, a Mumbai-based chief economist at Religare Capital Markets Ltd.
The end of elections this week in five provinces gives Prime Minister Manmohan Singh's government room to ease fuel price controls on state refiners.
Indian Oil Corp., the nation's biggest state-run refiner hasn't increased diesel prices since June 26 and gasoline since Jan. 16, according to the company's website.
Crude oil prices have risen 31 percent in the past year.
A meeting of a panel of Indian ministers scheduled for May 11 to consider raising fuel prices was deferred to May 17 or May 18, oil minister S. Jaipal Reddy said May 10.
--With assistance from Manish Modi and Tushar Dhara in New Delhi. Editors: Cherian Thomas, Nerys Avery
