Indian industrial production unexpectedly fell in September and the trade deficit widened to a record last month as exports declined, adding to signs that Asia’s third-largest economy is struggling.
Output at factories, utilities and mines dropped 0.4 percent from a year earlier after a revised 2.3 percent gain in August, 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 2.8 percent increase. The trade deficit was $20.96 billion in October, the Commerce Ministry said in a separate report.
Factory production has been subdued for most of this year, hurt by moderating consumer demand and a drop in exports as the global recovery falters. The Reserve Bank of India has signaled it may lower interest rates in the first quarter of 2013 to aid growth as inflation cools, after resisting calls from the Finance Ministry for a cut last month.
“There is some amount of weakness in demand,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai. Still, “it’s not as if it has fallen off a cliff,” he said.
The rupee, which has weakened about 9 percent against the dollar in the past year, fell 0.5 percent as of 1:25 p.m. in Mumbai. The BSE India Sensitive Index dropped 0.2 percent. The yield on the 10-year government bond due June 2022 held at 8.21 percent.
Prime Minister Manmohan Singh’s administration began a policy overhaul on Sept. 13, unveiling curbs to fuel subsidies to restrain spending and the next day allowing more investment from abroad in industries such as retail and aviation. Officials have also lowered a levy on overseas borrowing to spur capital inflows and aid the currency.
The government is trying to avert a credit-rating downgrade to junk status and bolster an economy that the International Monetary Fund predicts will expand 4.9 percent in 2012, the least in a decade.
Manufacturing dropped 1.5 percent in September from a year earlier, while capital goods output decreased 12.2 percent, today’s data showed. Mining rose 5.5 percent and electricity output increased 3.9 percent.
India’s exports merchandise shipments fell 1.6 percent in October from a year earlier to $23.3 billion in October, while imports climbed 7.4 percent to $44.2 billion, according to the Commerce Ministry.
A rise in oil and gold imports contributed to the widening trade gap, Commerce Secretary S.R. Rao said today. Inbound oil shipments surged 31.6 percent to $14.8 billion. The trade ministry will review measures to boost exports, Rao said.
India faces elevated inflation, preventing the central bank from joining nations such as Brazil and Thailand in extending interest-rate cuts as the world economy struggles.
Consumer prices rose 9.75 percent in October from a year earlier, after a previously reported 9.73 percent gain in September, a report showed today.
The benchmark wholesale-price index probably rose 7.9 percent in October from a year earlier, according to the median estimate in a Bloomberg News survey of 28 economists ahead of a release on Nov. 14.
The Indian economy will turn around in the second half, even as inflation could stay high till December, Chakravarthy Rangarajan, chairman of Singh’s Economic Advisory Council, said on the ET Now television channel today.
Reserve Bank Governor Duvvuri Subbarao held interest rates at 8 percent for a fourth meeting on Oct. 30, while reducing banks’ reserve requirements to 4.25 percent from 4.5 percent.
The central bank said last month there is a “reasonable likelihood” of further policy easing in the January-to-March period, providing inflation moderates.
Finance Minister Palaniappan Chidambaram had called for cheaper credit before the rate decision. He pledged on Oct. 29 to contain the budget shortfall at 5.3 percent of gross domestic product in the year through March 2013, as officials try to increase the central bank’s scope for a rate cut.
India’s local car sales by companies such as Maruti Suzuki India Ltd. climbed 23 percent in October from a year earlier, helped by festival demand, data from the Society of Indian Automobile Manufacturers showed last week.