India Growth Quickens From Four-Year Low as Rate Increases Loom

Indian economic growth quickened

last quarter from a four-year low on higher factory output, a

revival threatened by looming interest-rate increases to fight

rising prices in the nation of 1.2 billion people.

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

yesterday. The median of 44 estimates in a Bloomberg News Survey

was for a 4.6 percent gain.

“The down trend has been arrested, but a meaningful

recovery is still some distance away,” said Radhika Rao, an

economist at DBS Bank Ltd. in Singapore. “The outlook is

cautious because fiscal rationalization is on the horizon and

monetary policy will remain tight.”

Asia’s third-largest economy has struggled to take off as

the central bank boosts interest rates to curb inflation and

pressure grows on Prime Minister Manmohan Singh to cut 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 slower demand in a country

where some 825 million people live on less than $2 a day.

“The recovery will be gradual and tentative,” Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore,

said before the report. “The overall tighter financing position

will take a bit of a toll.”

Rate Increases

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.

Private consumption growth accelerated to 2.2 percent in

the last quarter from a year earlier, from a 1.6 percent pace in

the previous three-month period, yesterday’s report showed.

Government spending contracted 1.1 percent, while investment

jumped 2.6 percent.

The rupee weakened 0.1 percent yesterday 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 on Nov. 28.

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 yesterday. 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.

Factory Output

“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, the

Statistics Ministry said this month, less than the median

estimate of 3.5 percent in a Bloomberg survey. Sales growth

dropped to a four-year low at Indian conglomerate 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.

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.

Fastest Inflation

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

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Traffic Moves During Rush Hour in New Delhi

Prashanth Vishwanathan/Bloomberg

Traffic moves along a street during the evening rush hour outside Nehru Place business complex in New Delhi.

Traffic moves along a street during the evening rush hour outside Nehru Place business complex in New Delhi. Photographer: Prashanth Vishwanathan/Bloomberg

India Growth Quickens From Four-Year Low as Rate Increases Loom