India’s Slower Industrial Growth Adds Policy-Change Pressure

India’s industrial-output growth slowed in April, adding pressure for more government steps to spur the economy as elevated consumer-price inflation threatens to limit the central bank’s room to extend monetary easing.

Production (INPIINDY) at factories, utilities and mines rose 2 percent from a year earlier after a revised 3.4 percent gain in March, the Central Statistical Office said in New Delhi today. Another report showed consumer prices climbed 9.31 percent in May from a year earlier, exceeding the median 9 percent estimate in a Bloomberg News survey.

Asia’s third-largest economy expanded at the weakest pace in a decade in the year ended March, hurt by an uneven global recovery and moderating investment. The rupee fell to a record low this week, a drop that may make imports costlier and stoke price increases that have narrowed the Reserve Bank of India’s scope for a fourth straight interest-rate cut on June 17.

“This reaffirms that demand remains weak,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “The onus is on the government to take quick policy actions to revive investment and eventually create space for the Reserve Bank to cut rates.”

The rupee appreciated 0.8 percent to 57.945 per dollar as of 1:05 p.m. in Mumbai. The currency touched an all-time low of 58.9850 per dollar yesterday. The S&P BSE India Sensex (SENSEX) index fell 0.1 percent. The yield on the 7.16 percent bond maturing in May 2023 rose to 7.33 percent from 7.30 percent yesterday.

Consumer Prices

April’s industrial-production growth fell short of the median 2.4 percent estimate in a Bloomberg survey of 33 analysts.

Manufacturing rose 2.8 percent from a year earlier, while capital-goods output increased 1 percent, the statement showed. Mining fell 3 percent. Electricity output increased 0.7 percent.

Consumer-price inflation in India is the fastest in the Group of 20 major economies after Argentina, according to data compiled by Bloomberg.

Governor Duvvuri Subbarao will keep the repurchase rate at 7.25 percent next week, 11 of 19 analysts said in a Bloomberg survey. The rest called for a cut to 7 percent. Subbarao reduced borrowing costs 25 basis points in January, March and May each.

The rupee has been weighed down by India’s record current-account deficit and speculation the dollar will gain if the U.S. scales back monetary stimulus.

Gold and oil imports contributed to the $32.6 billion shortfall in the current account for the last quarter of 2012.

The government has raised taxes on imports of the metal to pare the gap, part of wider policy changes since September to prop up the economy and avert a credit-rating downgrade.

The push has foundered in recent weeks as protests over alleged graft in government disrupted parliament, impeding bills seeking to woo foreign investment, simplify taxes and provide more land for industry.

India’s gross domestic product rose 5 percent last fiscal year, the slowest pace since 2003. Domestic sales in India’s passenger-car industry, which includes manufacturers such as Maruti Suzuki India Ltd., fell 12.3 percent in May from a year earlier, in a sign consumer spending is still faltering.

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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