India’s Trade Gap Narrows in Potential Rupee Boost; Output Falls

India Industrial Production Declines as Holiday Skews Data
Laborers move a metal drum while doing road works in Gurgaon, India. Photographer: Brent Lewin/Bloomberg

India’s trade deficit narrowed for a second month in December, a trend that may improve the outlook for the nation’s currency even as industrial output fell after a holiday season skewed production.

The trade gap was $17.7 billion versus $19.3 billion in November, a month when output at factories, utilities and mines fell 0.1 percent from a year earlier, the government said in New Delhi today. Exports slid 1.9 percent compared with December 2011, while imports rose 6.3 percent.

India’s economy has been hurt by elevated inflation, tumbling overseas sales and subdued investment. The Reserve Bank of India has signaled it may cut interest rates in coming months to aid growth, while Finance Minister Palaniappan Chidambaram, due to unveil the budget next month, has pledged fiscal restraint as he tries to boost investor confidence.

“As global growth stabilizes in 2013, Indian exports could start picking up, which in turn may shrink the current-account deficit and provide support for the rupee,” said Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. in Mumbai. The RBI will lower borrowing costs at the Jan. 29 policy review to 7.75 percent from 8 percent, Bhardwaj said.

The rupee was down 0.4 percent to 54.795 per dollar as of 3:52 p.m. in Mumbai. The BSE India Sensitive Index was little changed at the close. The yield on the 8.15 percent bonds due June 2022 fell to 7.87 percent from 7.88 percent yesterday.

Gold Imports

Talks are underway on steps to curb gold imports, Commerce Secretary S.R. Rao said at the trade briefing in New Delhi today. Purchases of the metal contributed to a record current-account gap in the September quarter.

Industrial output rose a revised 8.3 percent in October, the Central Statistical Office said. The median of 34 estimates in a Bloomberg News survey for a 0.1 percent gain in November.

The Hindu festivals of Dussehra and Diwali take place over October and November, which causes “volatility” in the factory-output data and makes it difficult to read too much into them, said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai.

Manufacturing climbed 0.3 percent in November from a year earlier, while capital-goods output slid 7.7 percent, today’s report showed. Mining decreased 5.5 percent and electricity output rose 2.4 percent.

Prime Minister Manmohan Singh has revamped economic policy since mid-September, opening industries such as retail to more foreign investment and curbing fuel subsidies.

Singh is trying to boost an economy that grew 4.9 percent in 2012, the least in a decade, according to International Monetary Fund data. Inflation probably accelerated to 7.37 percent in December, a Bloomberg News survey showed.

The economy will expand about 6.5 percent in 2013, Asian Development Bank President Haruhiko Kuroda said in Tokyo today. Industrial output will likely improve in the first quarter, said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai.

Local passenger car sales by companies such as Tata Motors Ltd. fell for a second month in December, a Society of Indian Automobile Manufacturers report showed this week.

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