India Industrial Output Misses Estimates as Growth Dips

Indian industrial production rose less than economists estimated in July, adding to signs that Asia’s third-largest economy is faltering.

Production at factories, utilities and mines climbed 0.1 percent from a year earlier, after a 1.8 percent slide in June, the Central Statistical Office said in a statement in New Delhi today. The median of 33 estimates in a Bloomberg News survey was for a 0.5 percent gain.

Easing domestic demand and a slowdown in exports as Europe’s debt crisis saps global growth have hurt manufacturing in countries from India to China. The South Asian nation also faces elevated inflation, with all 25 economists in a Bloomberg News survey predicting its central bank will leave interest rates unchanged for a third meeting next week to damp prices.

“Fundamentally, it’s hard to see any triggers for a meaningful improvement in industrial production over the next year or so,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. The numbers are unlikely to prompt the central bank to cut interest rates, he said.

Prime Minister Manmohan Singh’s efforts to spur investment by further liberalizing the economy have been blocked by opposition from within his ruling coalition. His development agenda has also been set back by graft allegations that paralyzed parliament.

Rupee, Stocks

The rupee, which is down about 15 percent versus the dollar in the past year, climbed 0.2 percent to 55.25 per dollar as of 12:16 p.m. in Mumbai. The BSE India Sensitive Index (SENSEX) rose 0.5 percent on speculation officials in China and the U.S. will take steps to bolster their economies. The yield on the 8.15 percent government bond due June 2022 advanced to 8.20 percent from 8.18 percent yesterday.

The currency’s drop has made imports including oil more expensive, adding to price pressures from rising food costs as a below-average monsoon crimps farm output.

Inflation probably accelerated to 7.05 percent in August, holding above the Reserve Bank of India’s comfort level of about 5 percent, according to the median estimate in a Bloomberg survey ahead of a report due Sept. 14.

Governor Duvvuri Subbarao is due to announce his next rate decision on Sept. 17. He left the benchmark repurchase rate at 8 percent for a second meeting in July, refraining from joining a wave of cuts in borrowing costs stretching from Asia to Europe.

Twin Deficits

Singh’s government is also struggling to contain a subsidy program ranging from diesel to fertilizers to meet its goal of narrowing the budget deficit to 5.1 percent of gross domestic product in the 12 months through March 2013 from 5.8 percent.

The fiscal shortfall and a deficit in the current account, the broadest measure of trade, led Standard & Poor’s and Fitch Ratings to say earlier this year that they may strip India of its investment-grade credit rating.

Moody’s Investors Service said Aug. 2 that power outages on July 30-31, India’s worst, were “credit negative” for economic activity. The two collapses in India’s grid left more than half the country’s population of 1.2 billion without electricity.

Manufacturing fell 0.2 percent in July from a year earlier, while capital goods output shrank 5 percent, today’s data showed. Mining fell 0.7 percent and electricity output rose 2.8 percent.

Gross domestic product rose 5.5 percent in the three months through June from a year earlier, a pace close to the three-year low of 5.3 percent in the first quarter.

Subdued expansion has affected industries such as motorcycle manufacturers, with sales at companies including Hero Motocorp Ltd. (HMCL) and Bajaj Auto Ltd. (BJAUT) down 4.5 percent last month, the first fall since January 2009, data from the Society of Indian Automobile Manufacturers shows.

Forecasters such as Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley have lowered predictions for Indian economic growth in recent weeks. Morgan Stanley cut its projection to 5.1 percent for the current fiscal year from 5.8 percent.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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