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Slowdown fears ease as industry output up

Slowdown fears ease as industry output up
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First Published: Sat, Apr 12 2008. 12 54 AM IST
Updated: Sat, Apr 12 2008. 12 54 AM IST
New Delhi: Industrial production grew at the fastest pace in four months in February as record investment in power plants and factories boosted demand for electricity and cement. Production at factories, utilities and mines rose 8.6% from a year earlier after gaining a revised 5.8% in January, the statistics office said in New Delhi on Friday. Economists were expecting a 7.5% increase.
Anil Ambani’s Reliance Power Ltd is spending $28 billion (Rs1.12 trillion) over the next five years to build 13 generating plants in the world’s second-fastest expanding major economy. Growth may weaken in coming months as the highest borrowing costs since 2002 damp consumer spending.
“We are seeing a slowdown in sales of consumer goods due to higher interest rates and inflation,” said Venugopal Dhoot, chairman of Videocon Group, India’s largest consumer-electronics maker. “Higher rates make it difficult for consumers to afford monthly installments.”
Manufacturing, which accounts for about 80% of India’s industrial production, gained 8.6% in February from a year ago, according to Friday’s report. Electricity output rose 9.8%, the most in 17 months. Mining grew 7.5%.
Reserve Bank of India (RBI) governor Yaga Venugopal Reddy has raised the central bank’s key policy rates nine times since October 2004 and increased the cash reserve ratio five times since December 2006 to check prices.
India’s inflation accelerated to 7.41% in the week ended 29 March, the quickest in more than three years. Higher prices may prompt Reddy to again raise the cash reserve ratio, or the proportion of deposits that commercial banks must place with the central bank.
The RBI kept the key repurchase rate unchanged at 7.75% at the last monetary policy announcement on 29 January. The next statement is scheduled for 29 April.
“We expect a 50-basis-point hike in the cash reserve ratio before or at the April 29 policy” meeting, said Rajeev Malik, senior economist at JPMorgan Chase and Co. in Singapore. “The central bank will prefer tightening money over raising policy rates and rupee appreciation.”
India may settle for less growth in its fight against inflation, finance minister Palaniappan Chidambaram said on 28 March.
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First Published: Sat, Apr 12 2008. 12 54 AM IST