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India Industrial Production Beats Estimates After Policy Changes

Photographer: Brent Lewin/Bloomberg

Workers inspect molding pieces for quality control at the Motherson Sumi Systems Ltd. (MSSL) injection molding plant in Noida, India. Close

Workers inspect molding pieces for quality control at the Motherson Sumi Systems Ltd.... Read More

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Photographer: Brent Lewin/Bloomberg

Workers inspect molding pieces for quality control at the Motherson Sumi Systems Ltd. (MSSL) injection molding plant in Noida, India.

India’s industrial output rose more than economists estimated in January following policy changes by the government to bolster an economy expanding at the weakest pace in a decade.

Production at factories, utilities and mines climbed 2.4 percent from a year earlier after a revised 0.5 percent drop in December, the Central Statistical Office said in a statement in New Delhi today. The median of 28 estimates in a Bloomberg News survey was for a gain of 1.3 percent.

The government in last month’s budget said it will trim the fiscal deficit to a six-year low, seeking to reduce inflation risks and boost the central bank’s scope to cut interest rates. Wholesale prices probably increased at the slowest pace in more than three years in February, the median estimate in a Bloomberg survey shows before a report due March 14.

“Amidst expectations of a stretched and gradual demand revival, a sharp upswing in output is unlikely,” Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets Ltd., said before the release. The central bank will probably lower borrowing costs at next week’s policy meeting, he said.

Finance Minister Palaniappan Chidambaram targets a budget gap of 4.8 percent of gross domestic product in the year through March 2014, from 5.2 percent, in a bid to avert a credit-rating downgrade. The administration has taken steps in recent months to open the economy to more foreign investment, spur exports and speed up stalled road and rail projects to revive growth.

Rupee, Bonds

The rupee has appreciated about 2 percent against the dollar since the policy changes began in mid-September, paring its loss in the past year to 7.9 percent.

The currency rose 0.2 percent to 54.285 per dollar as of 11:07 a.m. in Mumbai. The yield on the benchmark 8.15 percent bond due June 2022 advanced to 7.87 percent from 7.84 percent yesterday. The BSE India Sensitive Index was little changed.

Reserve Bank of India Governor Duvvuri Subbarao has signaled inflation risks and a record current-account shortfall may limit the extent he can reduce borrowing costs.

Wholesale inflation probably eased to 6.6 percent in February, according to the survey. Consumer prices rose 10.91 percent last month from a year earlier, one of the highest rates in the world, another report showed today.

The central bank lowered its benchmark repurchase rate to 7.75 percent in January from 8 percent, the first reduction since April 2012.

A report yesterday showed exports climbed 4.2 percent in February from a year earlier. The trade gap was $14.9 billion.

Car makers such as Maruti Suzuki India Ltd. are bracing for the first annual sales decline in a decade. Local deliveries fell 4.6 percent to 1.71 million cars in the 11 months ended in February, Society of Indian Automobile Manufacturers data shows.

India’s gross domestic product will climb 5 percent in 2012-2013, the slowest pace since 2003, according to an estimate from the nation’s statistics agency.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Kartik Goyal in Mumbai at kgoyal@bloomberg.net

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

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