India’s Industrial Production Unexpectedly Increases

By Kartik Goyal

Jan. 12 (Bloomberg) -- India’s industrial production unexpectedly rose in November, after declining in the previous month for the first time in 15 years amid a global recession.

Output at factories, utilities and mines increased 2.4 percent from a year earlier after a revised 0.3 percent fall in October, the Central Statistical Organization said in New Delhi today. Economists expected a 0.8 percent contraction.

“The unexpected rebound is likely to be brief as external demand remains subdued,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.com. “Domestic consumption is set to moderate in coming months as the overall economy loses momentum, creating an uncertain business environment and unemployment outlook.”

Prime Minister Manmohan Singh, seeking re-election before May, may see his popularity erode as some companies scale back production and fire workers. Montek Singh Ahluwalia, the prime minister’s top economic adviser, says further interest-rate cuts and fiscal stimulus may be needed to revive an economy growing at its slowest pace in six years.

Bonds pared gains after the report showed production rose contrary to expectations. The yield on the benchmark 8.24 percent note increased to 5.91 percent at 12:25 p.m. from 5.88 percent before the report. The price fell to 116.40 rupees per 100-rupee face amount from 116.68 rupees. Bond prices earlier rose 3.2 percent to 117.9 rupees at 11:10 a.m.

Truckers’ Strike

Production may weaken in the months ahead as a continuing strike by truckers disrupts the movement of goods and production dropped at oil refineries as workers stopped work for three days.

More than four million truckers have been on strike since Jan. 5, demanding a cut in diesel prices and a waiver from paying a nationwide toll tax. A separate strike by about 50,000 workers cut production at companies including Indian Oil Corp., the nation’s biggest refiner.

The recessions in the U.S., Europe and Japan are hurting demand for made-in-Asia products, forcing companies to trim output. Industrial production in China rose 5.4 percent in November from a year earlier, the weakest pace in almost a decade. Output in South Korea fell 14.1 percent.

India’s overseas shipments dropped 9.9 percent in November from a year earlier after contracting 12.1 percent in October. The decline in exports and output may continue for the next two quarters, Trade Minister Kamal Nath said in a Jan. 8 Bloomberg Television interview.

Stocks Decline

Concern over companies cutting production and losing profits led to a 53 percent drop in the benchmark Bombay Stock Exchange Sensitive Index last year. The Sensex fell 2.7 percent to 9,153 at 1:34 pm in Mumbai today.

Manufacturing, which accounts for about 80 percent of India’s total output, rose 2.4 percent in November from a decline of 1.1 percent in October, today’s report showed. Mining grew 2.4 percent, compared with 3.2 percent in the previous month, while electricity production rose 3.1 percent from a 4.4 percent gain.

Slowing economic growth and tighter lending by banks is cutting local demand. Car sales declined 19 percent in November, the most in more than five years.

Tata Motors Ltd., India’s biggest truckmaker, will stop production at a commercial-vehicle factory for six days, the company said Jan. 9. Hyundai Motor Co.’s Indian unit is also cutting output on declining overseas demand and is firing some temporary staff.

Stimulus Package

To spur growth and stimulate consumer demand, India’s government on Jan. 2 unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank cut interest rates for the fourth time in less than three months.

Weaker production and exports may hurt India’s economic expansion. South Asia’s biggest economy may grow 7 percent in the year to March 31, from 9 percent or more annually in the previous three years, according to the government.

“The year 2009 is going to be a challenging year,” said Sunil Kant Munjal, Managing Director of the Hero Group, India’s biggest motorcycle maker. “We need to deepen the rate cuts and add to the stimulus packages to kick-start demand.”

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.