Indian economic growth quickened
last quarter from a four-year low on higher factory output, a
recovery that could be hampered by looming interest-rate
increases to fight inflation.
Gross domestic product rose 4.8 percent in the three months
ended September from a year earlier, compared with 4.4 in the
previous quarter, the Statistics Ministry said in New Delhi
today. The median of 44 estimates in a Bloomberg News Survey was
for a 4.6 percent gain.
Asia’s third-largest economy has struggled to gain traction
as the central bank raises interest rates to curb inflation and
pressure grows on Prime Minister Manmohan Singh’s government to
curb spending to meet a budget-deficit target. The rupee’s 12
percent fall against the dollar this year has boosted exports in
recent months, shielding factories from moderating demand among
India’s 1.2 billion people.
“The recovery will be gradual and tentative,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore.
“The overall tighter financing position will take a bit of a
toll.”
The central bank will raise the benchmark repurchase rate
by quarter of a percentage point by March, Varathan said,
reflecting a view shared by ICICI Securities Primary Dealership
Ltd. and DBS Bank Ltd.
The rupee weakened 0.1 percent to 62.4487 per dollar while
the SP BSE Sensex share index rose 1.3 percent. The yield on
the government bond maturing in November 2023 rose to 8.74
percent from 8.72 percent yesterday.
Global Factors
Growth eased in the first half of the fiscal year that
started on April 1 in part because of global factors out of the
government’s control, Chakravarthy Rangarajan, chairman of
Singh’s Economic Advisory Council, told a conference in New
Delhi today. India’s expansion has lagged behind regional rivals
from China to Indonesia, and the South Asian nation’s companies
are grappling with conditions akin to stagflation.
“I am optimistic that the second half will be spurred
along by increased manufacturing, leading to a more stable
rupee,” Rangarajan said. China grew 7.8 percent last quarter
and Indonesia 5.6 percent.
Factory output climbed 2 percent in September, another
report showed, less than the median estimate of 3.5 percent in a
Bloomberg survey. Sales growth dropped to a four-year low at
India’s hotels-to-cigarette company, ITC Ltd., partly as profit
at the hotels business fell.
Reserve Bank of India Governor Raghuram Rajan is expected
to raise the policy interest rate to 8.5 percent next year from
7.75 percent, Goldman Sachs Group Inc. said on Nov. 21, building
upon two increases of a combined 50 basis points after he moved
to the central bank in September.
‘Unenviable Task’
The central bank faces the “unenviable task” of
controlling inflation while boosting an economy that grew at the
slowest pace since 2003 in the last fiscal year, the RBI said in
an economic review last month.
Finance Minister Palaniappan Chidambaram, who has
repeatedly said he’ll stick to deficit targets, will reduce
planned outlays on items such as roads, ports and welfare
programs by about 700 billion rupees ($11 billion) this fiscal
year, according to Yes Bank Ltd. Chidambaram has pledged to
narrow the deficit to a six-year low of 4.8 percent of GDP in
the 12 months ending March 31.
India’s credit rating may be cut to junk next year unless
the general election leads to a government capable of reviving
economic expansion, Standard Poor’s said earlier this month.
Bolstering Rupee
The central bank under Rajan, a former International
Monetary Fund chief economist, has offered concessional dollar
swaps to banks to spur inflows of the U.S. currency and bolster
the rupee. The currency has appreciated about 10 percent since
slumping to a record low in August.
Graft scandals and budget and trade deficits have made it
harder for Singh to ease supply bottlenecks that are
contributing to consumer-price inflation of 10 percent, the
fastest in a basket of 17 Asia-Pacific economies tracked by
Bloomberg.
Singh began a policy overhaul in September 2012 to spur
growth. Steps have included gradual increases in diesel prices
aimed at containing subsidies, and lifting curbs on foreign
investment in the retail and aviation sectors to attract capital
flows.
Opinion polls signal neither his Congress Party nor the
main opposition Bharatiya Janata Party, whose campaign is led by
Gujarat Chief Minister Narendra Modi, will get a majority in the
general election.
“Clearly the investment cycle has not picked up and it is
uncertain whether it will happen before elections,” Prasanna Ananthasubramanian, a Mumbai-based economist at ICICI Securities
Primary Dealership, said before the report.
To contact the reporter on this story:
Unni Krishnan in New Delhi at
ukrishnan2@bloomberg.net
To contact the editor responsible for this story:
Daniel Ten Kate at
dtenkate@bloomberg.net
India Growth Quickens as Possible Rate Increases Imperil Rebound
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