The Mint Report for 12 September 2011

The Mint Report for 12 September 2011

It was meant to be a grand win-win bargain for two car companies, but the alliance between Suzuki Motor and Volkswagen is coming to an end. Suzuki has offered to buy back Volkswagen’s nearly 20% stake in the company. In turn, Suzuki says it will sell its own 1.5% stake in Volkswagen. Suzuki and Volkswagen forged their alliance back in December 2009. Suzuki was supposed to increase Volkswagen’s India presence. And Volkswagen was supposed to develop new diesel and hybrid engines. But Volkswagen later said Suzuki was breaking the terms of the deal by striking a separate agreement with Fiat to develop diesel engines.

India also appears to have been a crucial factor in the break-up Suzuki gets 70% of its profits from Maruti Suzuki. And Mint has learnt that Maruti felt it had little to gain in return for giving Volkswagen access to Indian markets.

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Switching to the economy, factory output in July has plunged to its lowest in 21 months. The numbers come just days before the Reserve Bank reviews its policy rates. The Index of Industrial Production inched up just 3.3% during the month. In June it was at 8.8%. The latest figures are below most expectations and come just days before the Reserve Bank meets to consider a fresh round of rate hikes.

Here’s how the IIP numbers break down by sector. Manufacturing output during the period grew at just 2.3% in July compared to 10.8% in the year-ago period. And mining went up a mere 2.8% compared to 8.7%. Capital goods actually showed a steep decline of 15.2%. Electricity on the other hand showed a robust 13.1% increase during the month compared to a mere 3.7% in July 2010. Of course, Monday’s figures have some other bright spots. These include an 82% rise in July’s merchandise exports. Another growth story is the 6.2% expansion in consumer goods led by durables.