New Delhi: India’s industrial production grew at the fastest pace in 25 months, giving the central bank room to start reversing last year’s record interest rate cuts.
Output at factories, utilities and mines rose 11.7% in November from a year earlier after gaining 10.3% in October, the statistics agency said in New Delhi on Tuesday. This figure is more than the median 10% estimate in a Bloomberg survey of 25 economists.
Fast track: A New Holland India tractor unit in Noida. Data shows growth is gaining traction in the country. Madhu Kapparath / Mumbai
The best annual stock gains in 18 years, lower borrowing costs and government stimulus measures are boosting demand for cars made by Maruti Suzuki India Ltd and plasma screens from LG Electronics India Pvt. Ltd.
Stronger growth in India and China is leading the world out of its economic slump, enabling policymakers to shift their attention to fighting inflation.
Higher production and faster inflation “cement the case” for the Reserve Bank of India (RBI) to raise its cash reserve ratio at, or before its next policy review, Rajeev Malik, an economist at Macquarie Group Ltd in Singapore, said before the report. “The RBI will prefer to normalize the monetary setting following the aggressive and successful easing to cushion the economy.”
Economies are recovering across Asia after the region’s policymakers unveiled about $1 trillion (Rs45 trillion) in stimulus measures and cut interest rates to spur growth. China’s industrial production rose 19.2% in November and exports climbed 17.7% in December.
Recent data shows growth is gaining traction in India as well, where manufacturing rose at the fastest pace in seven months in December, according to the Purchasing Managers’ Index prepared by HSBC Holdings Plc and Markit Economics.
Exports grew 18.2% in November, the first increase in 14 months.
RBI governor D. Subbarao “should begin monetary action by shrinking the excess liquidity in the local money markets and then move to increasing policy rates around March and April”, Macquarie’s Malik said. The central bank will be concerned about the excess liquidity and second-order inflationary effects of high food inflation.
India’s benchmark wholesale price inflation rate rose to 4.78% in November, more than three times October’s 1.34%. Wholesale food prices soared 18.22% in the week to 26 December from a year earlier, near the most in 11 years.
“With both growth and inflation heading toward 8%, we expect the Reserve Bank of India to start increasing its policy rates in January, “ said Sonal Varma, a Mumbai-based economist at Nomura Securities Co., Japan’s largest brokerage.
Prime Minister Manmohan Singh last year cut taxes on consumer products, increased spending on roads and utilities, raised salaries for government workers, and waived farm loans.
The central bank injected about $130 billion into India’s banking system by reducing interest rates and lowering lenders’ reserve requirements. That helped the $1.2 trillion economy to grow 7.9% in the three months ended 30 September, the most in one-and-a-half years.
India’s growth may quicken to 10% in a “couple of years”, exceeding that of China as early as 2014, Kaushik Basu, chief economic adviser to the finance ministry, said on 4 January. The government has no plans to “suddenly” withdraw last year’s stimulus, he said.
The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other car makers introduced 10 new models at the 10th Auto Expo in the Capital last week.
Passenger car sales hit 1.43 million units in 2009, the most in three years, the Society of Indian Automobile Manufacturers said on 8 January.
ArcelorMittal, the world’s biggest producer of steel, and Posco, the sixth biggest maker of the alloy, plan to set up new steel mills in southern India. Posco will invest Rs32,300 crore on a mill in Karnataka, the state government said on 7 January. ArcelorMittal plans to sign an accord in June for a Rs30,000 crore project in the same state.