Industrial production growth seen to grow on higher demand

Industrial production growth seen to grow on higher demand

India’s industrial production growth probably accelerated in October as the onset of the festival season and rising incomes spurred consumer spending.

Production at factories, utilities and mines rose 10% from a year earlier, faster than September’s 6.4% gain, according to the median forecast of 18 economists in a Bloomberg survey. The Central Statistical Organisation’s report is due in New Delhi on Wednesday.

Demand for cars, mobile phones and manufactured products has risen amid record salaries in Asia’s third biggest economy, encouraging companies such as Metro AG and Coca-Cola Co. to expand operations. Consumer spending also got a boost in October as India’s 830 million Hindus prepared to celebrate Diwali and the nation’s 140 million Muslims observed Id-Ul-Fitr, which marks the end of the fasting month of Ramadan.

“Higher spending in the festive season was boosted by rising incomes," said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard & Poor’s Ltd. “Better export growth would have also helped output."

Indians got the second highest salary increase in the Asia-Pacific region this year, helped by record economic growth. Wages increased an average 14.8% in 2007 from 14.4% last year, according to human resources consulting firm Hewitt Associates Inc.

Accelerating industrial growth, which makes up a quarter of the $906 billion (Rs35.6 trillion) economy, helped the benchmark Sensex to soar 44% this year, led by Bharti Airtel Ltd and Reliance Industries Ltd.

Mobile phones

Bharti Airtel, Vodafone Group Plc.’s Indian unit, and other mobile phone operators jointly added 8.05 million subscribers in October.

Company sales also get a fillip during the festive months of October and November as people consider it auspicious to make purchases then. Local sales of passenger cars in October rose 14.6% from a year earlier to 105,878 units, the New Delhi-based Society of Indian Automobile Manufacturers said. Sales at General Motors Corp. increased almost four times and Maruti Suzuki India Ltd gained 16%.

New factories

Honda Motor Co., Volkswagen AG and half-a-dozen other companies plan to spend at least $6.6 billion in India on new factories to cash in on the nation’s auto demand. GM is spending more than $300 million to build a second car factory in India.

“The rise in incomes seems to have cushioned the impact of previous interest rate increases," Joshi said. “Growth is expected to slacken in coming months as the impact of those earlier rate increases begins to have an impact on demand."

The Reserve Bank of India has lifted its benchmark interest rate nine times since October 2004 to fight inflation, making commercial bank loans more expensive.

Industrial output also rose as shipments of manufactured goods, including gems and petroleum products, increased in October at the fastest pace in 15 months.

India’s exports jumped 35.7% from a year earlier to $13.3 billion, following a 19.2% gain in September.

Manish Modi in New Delhi and Anoop Agrawal in Mumbai contributed to this story.