Surprise India Factory Slowdown Pressures Singh to Spur GrowthUnni Krishnan
India’s industrial-output growth slowed more than economists estimated in August as consumer spending moderated, adding pressure on Prime Minister Manmohan Singh’s government to intensify efforts to revive the economy.
Output at factories, utilities and mines advanced 0.6 percent from a year earlier after a revised 2.75 percent climb in the previous month, the Statistics Ministry said in a statement in New Delhi yesterday. The median of 33 estimates in a Bloomberg News survey was for a 2 percent gain.
Singh’s steps, ranging from fewer restrictions on foreign investors to faster approvals for road and power projects, have so far failed to stem a slowdown in economic growth. The nation also faces consumer-price inflation of almost 10 percent, which led Reserve Bank of India Governor Raghuram Rajan to raise the benchmark interest rate last month even as investment moderates.
“Demand conditions are clearly weak and from the RBI’s perspective what’s needed is to bring down inflation,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. The government must narrow the budget deficit to curb price pressures and boost Rajan’s room to loosen monetary policy in future, he said.
The rupee, which has slid 13 percent against the dollar in the past 12 months, strengthened 0.5 percent to 61.08 at the close in Mumbai yesterday. The S&P BSE Sensex index advanced 1.3 percent. The yield on the 10-year government bond maturing May 2023 rose to 8.49 percent from 8.42 percent on Oct. 10.
The currency has appreciated about 13 percent since reaching a record low on Aug. 28, helped by Rajan’s efforts to attract dollar inflows after taking over at the RBI last month.
Rajan has raised the repurchase rate by a quarter of a percentage point to 7.5 percent to tackle inflation, while easing liquidity curbs imposed in July to shore up the rupee.
Growth in Asia’s third-largest economy is “somewhere near the low,” the governor said in a speech in Washington on Oct. 10. The pace should accelerate, helped by exports and farm output, he said.
Shipments abroad have climbed since July, snapping a three-month stretch of declines. They rose 11 percent in September as imports dropped 18 percent and the trade deficit shrank to $6.76 billion, the narrowest since March 2011, according to an Oct. 9 release and previously reported data.
Manufacturing fell 0.1 percent in August from a year earlier, while capital goods output slid 2 percent, yesterday’s data showed. Mining declined 0.2 percent and electricity output increased 7.2 percent.
Wholesale prices rose 6 percent in September from a year earlier, holding close to the fastest pace in six months, according to the median estimate in a Bloomberg News survey before a report due Oct. 14. Consumer prices increased 9.5 percent last month, a separate survey projects.
Slower Indian expansion has hurt companies such as Tata Motors Ltd., India’s biggest automaker by revenue. Tata’s local deliveries dropped 35 percent in September.
The economy will expand 5 percent to 5.5 percent in the fiscal year ending March, the Finance Ministry forecasts. HSBC Holdings Plc predicts slower growth of 4 percent, which would be the weakest pace in more than a decade.