India Factory-Output Unexpectedly Declines as Inflation QuickensUnni Krishnan
India’s industrial output contracted unexpectedly in May, adding pressure for more government steps to revive the economy as a sliding rupee curbs scope for further interest-rate cuts.
Production at factories, utilities and mines declined 1.6 percent from a year earlier after a revised 1.9 percent climb in April, the Central Statistical Office said in New Delhi yesterday. The median of 31 estimates in a Bloomberg News survey was for a 1.4 percent gain. Another report showed consumer-price inflation accelerated to 9.87 percent in June.
The rupee’s plunge to a record low against the dollar this year threatens to stoke inflation and prompted the Reserve Bank of India to leave borrowing costs unchanged last month, snapping a run of three reductions. The government has eased foreign-investment limits in industries such as aviation and retail, seeking to steady the currency and spark an economic revival.
“The industrial-production data is bad and it’s a surprise that it’s a negative, while consumer price inflation remains high,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “There is an immediate need to release food stocks to cool down food prices.”
The rupee strengthened 0.1 percent to 59.63 per dollar at the close in Mumbai, while the S&P BSE Sensex index advanced 1.4 percent. The yield on the 8.15 percent note due June 2022 rose to 7.65 percent yesterday from 7.57 percent on June 11.
The rupee touched an all-time low of 61.2125 on July 8 and is the worst performer in 2013 after the yen in a basket of 11 Asian currencies tracked by Bloomberg, dropping 7.8 percent.
India’s record current-account deficit and the possibility of reduced U.S. monetary stimulus have hurt the currency.
The nation is considering selling sovereign bonds abroad for the first time as policy makers weigh measures to help stem rupee declines, two officials with direct knowledge of the matter said.
The trade deficit narrowed to $12.2 billion in June from $20.1 billion the previous month as gold and silver imports slid, a separate government release and previously reported data showed yesterday. India has raised import taxes on the yellow metal twice in 2013.
The Reserve Bank left borrowing costs at 7.25 percent in June, after 25 basis-point cuts in January, March and May each. Asia’s third-largest economy expanded 5 percent last fiscal year, the slowest pace in a decade.
Consumer-price inflation in June quickened from 9.31 percent in May and remained the second-fastest in the Group of 20 major economies.
Wholesale-price inflation probably accelerated to 4.94 percent in June from 4.7 percent in May, according to the median estimate in another Bloomberg survey.