Dec. 15 (Bloomberg) -- India may add to interest rate and tax cuts announced early this month as declining output and exports indicate Asia’s third-biggest economy is headed for a deeper than expected slowdown, a government official said.

“The government is committed that whatever steps are required to be taken in the near future as the scenario further unfolds will be taken,” Ashok Chawla, India’s economic affairs secretary, said in a Bloomberg News interview in Hong Kong today.

India’s industrial production declined in October for the first time in more than 15 years, adding to evidence the $1.2 trillion economy may expand at the slowest pace in six years as weaker domestic demand and waning exports force companies to cut production. Investor sentiment has also been shaken by terror attacks in Mumbai last month that killed 164 people.

“The present priority is to ensure that the economy doesn’t slow down very much and that growth is not hampered,” Chawla said. “That’s the main objective at this point.”

Weaker production and exports may hurt India’s economic expansion. South Asia’s biggest economy may grow 7 percent in the year to March 31 from 9 percent or more annually in the previous three years, the government expects. India’s exports fell for the first time in seven years in October.

The economy may slow more than initially estimated and the central bank will revise downwards its earlier forecast of 7.5 percent growth in its Jan. 27 policy meeting, according to Governor Duvvuri Subbarao. The economy will face a period of “painful adjustment” as the world sinks into recession, the central bank said Dec. 6.

Interest Rates

India’s economy expanded 7.6 percent in the three months to Sept. 30 from a year earlier, the slowest pace since 2004.

To revive demand, the central bank on Dec. 6 lowered its benchmark repurchase rate to 6.5 percent from 7.5 percent, the third cut since October. The next day the government announced a $4 billion stimulus package.

“The next budget is a couple of months away, so we have wait and watch what happens in the meanwhile and what steps are taken till then,” Chawla said.

Concern over companies cutting production and losing profits has seen the benchmark Bombay Stock Exchange Sensitive Index decline 51 percent this year. Overseas investors have sold $13 billion of Indian shares this year, compared with $17.2 billion of share purchases in 2007.

To help counter a slowdown in the construction sector, Indian state-run banks decided to cap the interest rate for home loans that don’t exceed 500,000 rupees ($10,425) at 8.5 percent, State Bank of India Chairman O.P. Bhatt said in Mumbai today. Interest rates capped at 9.25 percent will be offered for borrowers seeking loans of less than 2 million rupees, he said.

India’s steel production fell 0.5 percent in October, compared with a 4.7 percent gain in September, according to the government. Cement production in October grew at 6.2 percent, slower than 7.9 percent in September.

To contact the reporters on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.netKartik Goyal in New Delhi at kgoyal@bloomberg.net.

Last Updated: December 15, 2008 02:12 EST