Indian industrial production rose less than predicted in February as weaker overseas demand and the highest interest rates since 2008 curbed output, with January’s figure revised lower because of a data error.
Production at factories, utilities and mines advanced 4.1 percent from a year earlier, the Central Statistical Office said in a statement in New Delhi today. The median of 36 estimates in a Bloomberg News survey was for a 6.7 percent gain. January’s reading was cut to 1.1 percent from 6.8 percent after an error was found in sugar output calculations, the office said.
The Reserve Bank of India, which reviews policy on April 17, has signaled readiness to reduce borrowing costs to bolster domestic spending and counter export threats from easing Chinese expansion, slower U.S. jobs growth and Europe’s debt crisis. At the same time, the monetary authority has flagged inflation risks from oil prices, a weaker rupee and government spending.
“The central bank will cut interest rates next week, even though volatility takes away the efficacy of basing policy decisions on just this data,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai.
Government bonds rose, with 10-year notes climbing the most in more than two months. The yield on the 8.79 percent note due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.44 percent from 8.55 percent. The BSE India Sensitive Index rose 0.8 percent. The rupee declined 0.3 percent to 51.59 per dollar. It is up 2.9 percent this year, after sliding 16 percent in 2011.
‘Frail’ Investment Recovery
Finance Minister Pranab Mukherjee said the correction to January’s figure was “disappointing,” adding manufacturing failed to revive in the first quarter of this year.
“Domestic investment recovery has remained frail,” he told reporters in New Delhi today. “The government, along with the RBI, will take steps to revive investment activity.”
Indian inflation cooled to 6.65 percent last month from 6.95 percent in February, holding near a 26-month low, according to another Bloomberg survey ahead of data due April 16.
The Reserve Bank raised its benchmark repurchase rate by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent, seeking to quell price pressures.
While it kept the measure unchanged for a third meeting in March, the monetary authority has reduced the amount lenders need to set aside as reserves twice in 2012 to ease a cash squeeze threatening growth.
‘Animal to Tackle’
Eleven of 17 economists in a Bloomberg News survey expect the central bank to reduce borrowing costs to 8.25 percent next week, while two foresee a 0.5 percentage point cut to 8 percent. Four predict no change, taking their cue from an inflation rate that remains the fastest in the BRIC group of biggest emerging economies that also includes Brazil, Russia and China.
“There is an acknowledgement that inflation is not going to be an easy animal to tackle,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “We expect rates to be cut between 50 basis points to 75 basis points this financial year, much lower than our earlier estimates.”
Sugar production was wrongly taken to be 13.4 million tons in January, whereas the correct figure is 5.8 million tons, the government said. Manufacturing expanded 4 percent in February from a year earlier, compared with 1.4 percent gain in the previous month, today’s figures showed. Mining grew 2.1 percent.
Emerging markets from Brazil to the Philippines have lowered rates in recent months to shield expansion.
Government estimates show Asia’s third-largest economy expanded 6.9 percent in the year through March 2012, the least in three years, as costlier credit hampered investment. China’s economy probably expanded 8.4 percent in the first quarter, the slowest pace in almost three years, a Bloomberg survey showed.
Prime Minister Manmohan Singh’s government is facing one of the most challenging periods since taking office in 2004, as fiscal and current-account deficits threaten to hamper growth.
In the annual budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013. The current-account gap was $19.6 billion in the three months through December, the worst quarterly performance on record.
Policy reversals have further hindered Singh’s economic agenda, including the suspension in December of plans to open India’s retail industry to foreign companies such as Wal-Mart Stores Inc.