India Factory Output Unexpectedly Falls as Recovery FloundersUnni Krishnan
India’s industrial output unexpectedly declined in November, adding pressure on Prime Minister Manmohan Singh to bolster the economy ahead of elections this year.
Output at factories, utilities and mines fell 2.1 percent from a year earlier after a revised 1.6 percent contraction in the previous month, the Statistics Ministry said in a statement in New Delhi yesterday. The median of 37 estimates in a Bloomberg News survey was for a 0.8 percent rise.
The number was a “big surprise” and economic recovery is still some way off, K.K. Mital, head of portfolio management services at Globe Capital Market Ltd. in Delhi, said by phone. The figure revealed a “gap between green shoots of recovery and expectations,” he said.
The central bank’s effort to control Asia’s fastest consumer price inflation by boosting interest rates has prompted the country’s 1.2 billion people to cut back spending as economic growth falters. Singh is under pressure to curb government spending as rating companies threaten to downgrade India to so-called junk status.
“Industrial production data will continue to remain weak,” said Tirthankar Patnaik, a strategist at Religare Capital Markets Ltd. in Mumbai. “Even though we have bottomed out, it is the recovery that we are worried about.”
The rupee, which has slid about 12 percent against the dollar in the past 12 months, strengthened 0.3 percent to 61.905 at the close yesterday in Mumbai. The S&P BSE Sensex index advanced 0.2 percent. The yield on the 10-year government bond maturing November 2023 fell to 8.76 percent from 8.79 percent on Jan. 9.
Interest rates will remain elevated as long as surging inflation imperils economic growth, K.C. Chakrabarty, a deputy governor of the country’s central bank, said last week. Consumer prices climbed 11.24 percent in November. Wholesale inflation was 7.52 percent, a 14-month high, as onion prices tripled from a year earlier.
Governor Raghuram Rajan surprised economists last month by holding the benchmark repurchase rate at 7.75 percent instead of adding to increases totaling 50 basis points since taking over the RBI in September.
India’s deficit target of 4.8 percent of gross domestic product for the year ending March 31 is a “red line” that will not be breached, Jesudasu Seelam, a deputy finance minister, said in an interview. The country’s credit rating may be cut to junk unless elections due by May lead to an administration capable of reviving growth, Standard & Poor’s said in November.
Singh told reporters this month that his government could’ve done better at controlling price rises. The prime minister had said the economy is headed for better times, and recent steps such as faster approvals for road and power projects would boost economic growth.
Overseas shipments rose 3.5 percent in December, a six-month low, as imports fell 15.3 percent. The trade deficit widened to $10.1 billion, according to government data.
For now, slower expansion is hurting companies such as Tata Motors Ltd., India’s biggest automaker by revenue. Tata’s local deliveries dropped 43 percent in December.
The $1.8 trillion economy will probably expand 5 percent in the 12 months through March 31, the same pace as the last fiscal year, which was the weakest in a decade, according to central bank estimates.