Thermax’s Unnikrishnan Says India Rates May Lead to Slowdown

M.S. Unnikrishnan, managing director of Thermax Ltd., an Indian power equipment maker, comments on the unexpected slowdown in India’s industrial production. He spoke in a telephone interview from Pune in the western state of Maharashtra.

Output at India’s factories, utilities and mines rose 3.6 percent in February from a year earlier after a revised 3.95 percent gain in January, the government said in a statement in New Delhi today. The median estimate of 30 economists in a Bloomberg News survey was for a 5.1 percent increase.

Production of capital goods slid 18.4 percent in February, the third monthly decline.

“One is not taking undue cognizance of such a negative number but it’s a concern at this point of time, and doesn’t augur too well for the industry.”

On his outlook for the industry:

“There may be a slowdown in infrastructure building in the next two quarters due to higher interest costs, which may consequently lead to economic slowdown.

“On the ground, the situation is not so bad. There is no demand reduction but orders are getting delayed as people calculate and recalculate paybacks and internal rates of return, which are shrinking with higher interest rates.

“Companies with good balance sheets may go ahead with their expansion. They can afford to get better rate from the banking system and can take decisions very quickly.”

On borrowing costs:

“We need inflation for growth of an economy, but a moderate inflation. From the fiscal fourth quarter onwards, there may be a realization that increasing interest rates will only slow the economy, and costs need to be brought down through legislative measures like the public distribution system.”

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