New Delhi: India’s industrial production growth accelerated in April as companies such asFord Motor Co. and Honda Motor Co. expanded capacity in the world’s fastest growing economy after China.
Production at factories, utilities and mines rose 7% from a year earlier after gaining a revised 3.9% in March, the statistics office said in the Capital on Thursday.
Nissan Motor Co., one of the auto makers investing more than $6 billion (Rs25,000 crore) in India to boost output, began building a $1.1 billion factory this month to make 400,000 vehicles annually.
Still, production growth may slow this year in Asia’s third largest economy and across the region as faster inflation and higher borrowing costs crimp spending by consumers and companies.
“Corporate sentiment has been hurt by the rise in business costs and investment activity is set to moderate,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney.
Faster inflation, spurred by higher commodity and energy prices, may reduce global growth this year to 2.7% from 3.7% in 2007, according to the World Bank.
Factory output in China grew 15.7% in April, slower than 17.8% in the previous month, Singapore’s production fell 5.7% in April, compared with a 18% gain in March.
Reserve Bank of India Governor Yaga Venugopal Reddy unexpectedly raised the central bank’s repurchase rate to a six-year high of 8% from 7.75%, after twice increasing its cash reserve ratio in April to contain inflation, currently holding at a three-and-a-half year high of 8.24%.
“We expect another 25 basis points increase in the repurchase rate in the next policy meeting in July and a 50 basis points increase in the cash reserve ratio,” said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai.
Higher borrowing costs may force banks such as ICICI Bank Ltd., India’s second biggest lender, and others to raise lending rates in a nation where the majority of automobiles are bought on loans.
Indian car makers sold 98,740 cars in April, lower than 128,074 cars in March.
Sales of trucks and buses increased 7.6% in April, slower than the 14.2% gain clocked in March.
“The combination of record-high inflation and interest rates and an unprecedented increase in oil prices makes it challenging for companies to sustain sales,” said Dilip Chenoy, director general of the Society of Indian Automobile Manufacturers, the grouping of the nation’s car manufacturers. “There are serious concerns about the availability of loans to buy automobiles.”
Mining grew 8.6% in April, faster than 2.6% in the same month a year ago, the report showed.
Manufacturing, which accounts for about 80% of India’s industrial production, gained 7.5% in April, slower than 12.4% in the same month a year ago.
Electricity output rose 1.4%, compared with 8.7 % a year ago, and consumer goods production increased 8.9%.
Still, the prospect of sustained higher economic growth and rising incomes is attracting companies to expand capacity and use India as a global production centre.
Ford Motor is spending $500 million to expand its factory in Chennai, to make 250,000 engines and 200,000 vehicles annually by 2010.
Economic growth has averaged 8.9% in the last four years, making India the fastest growing major economy in the world after China. Per-capita income doubled to Rs24,321 in the year ended March, compared with 2001.
Prime Minister Manmohan Singh has cut import duties on edible oils, steel and fuel products and banned the exports of pulses, rice and wheat in an effort to sustain consumer demand amid rising prices.