Consumer spending hike might have helped industrial production

Consumer spending hike might have helped industrial production
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First Published: Tue, Aug 12 2008. 01 00 AM IST

Rough ride: A Honda car manufacturing plant in Surajpur, Uttar Pradesh. (Photograph by Ramesh Pathania / Mint)
Rough ride: A Honda car manufacturing plant in Surajpur, Uttar Pradesh. (Photograph by Ramesh Pathania / Mint)
Updated: Tue, Aug 12 2008. 12 15 PM IST
New Delhi: India’s industrial production growth probably accelerated in June as consumers spent more on refrigerators, air conditioners and other manufactured goods.
Output at factories, utilities and mines rose 5.4% from a year earlier after gaining 3.8% in May, according to a Bloomberg News survey of 20 economists. The Central Statistical Organisation will release the report at midday in New Delhi on Tuesday.
Rough ride: A Honda car manufacturing plant in Surajpur, Uttar Pradesh. (Photograph by Ramesh Pathania / Mint)
Production growth has averaged 5.5% in 2008, less than half last year’s pace, as the fastest inflation since 1995 curbs spending. Output may slow as the central bank raises borrowing costs to tame inflation, crimping sales at Tata Motors Ltd and Maruti Suzuki India Ltd.
“Industrial production growth will remain subdued this year as domestic demand softens,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s.
Reserve Bank of India governor Yaga Venugopal Reddy on 29 July raised the central bank’s benchmark rate by a half point to 9% and increased the reserve requirements for commercial lenders to 9% from 8.75%.
Higher interest rates are discouraging spending by consumers who rely on loans to buy cars and motorbikes. Sales at Maruti Suzuki, maker of half the cars sold in India, increased 1.1% in July, the slowest pace in four months. Sales at Tata Motors, India’s biggest truck maker, fell 3.3% in July as demand declined.
World Trade Organization (WTO) director general Pascal Lamy is visiting India for two days from Tuesday to gauge industry views on the collapse of talks on a global trade agreement.
Lamy will hold discussions with the nation’s industry leaders on non-agriculture market access, commerce secretary G.K. Pillai had said on 5 August. He will also meet commerce and industries minister Kamal Nath.
A nine-day WTO summit in Geneva ended without an agreement to cut agriculture subsidies and tariffs on industrial goods. The talks collapsed on 29 July after India and the US disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
Pillai said on 4 August that a consensus on WTO talks may take two years due to elections in the US and later in India.
India’s benchmark Sensex index posted its fifth weekly gain, the longest winning streak in nine months. The measure advanced 3.5% last week, helped by a decision by the country’s top court to allow Posco to build a $12 billion steel plant and Sterlite Industries (India) Ltd to mine bauxite.
The Supreme Court on 8 August allowed Posco, Asia’s third largest steel maker, to build the plant and buy iron ore from the market. Land disputes and delays in allocating mining licences have stopped Posco from proceeding with potentially the biggest overseas investment in India.
Separately, Sterlite Industries, the nation’s largest zinc and copper producer, won approval for its unit to mine bauxite in the eastern state of Orissa.
Bonds gained after the government sold the benchmark notes at a lower-than-expected yield, indicating that demand for debt increased. The 10-year security attracted bids worth 2.5 times the amount on offer, RBI said on 8 August, compared with the so-called bid-cover ratio of 2.07% at the previous auction on 24 July.
The yield on the 8.24% note due April 2018 dropped 8 basis points to 9.03% in Mumbai. One basis point is one-hundredth of a percentage point.
India’s rupee advanced during the week on speculation rising stocks will encourage overseas fund managers to buy more of the nation’s assets. The currency rose to the highest level in almost three months, boosted also by a slump in crude oil prices that will reduce the nation’s import costs.
The rupee gained 0.7% last week to 42.06 per dollar, the highest since 12 May. India’s financial markets will be closed on 15 August on account of Independence Day.
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First Published: Tue, Aug 12 2008. 01 00 AM IST