India Price Inflation February 2 2008

India's wholesale inflation slowed at the start of February as prices of vegetables and pulses fell. Wholesale prices climbed 4.07 percent in the week ended Feb. 2 from a year earlier, slower than the previous week's 4.11 percent, the Ministry of Commerce and Industry said today in New Delhi.




Slowing inflation may be temporary because Prime Minister Manmohan Singh yesterday approved raising retail fuel prices for the first time in 20 months. India's central bank kept interest rates at a five-year high on Jan. 29, citing concern that fuel and food costs may fan inflation in Asia's third-largest economy.

Higher borrowing costs are putting a brake on demand for homes, motorbikes and other consumer durables, and this is significant since consumer spending has been a key driver of India's economic growth in recent times. Bajaj Auto - India's second- biggest motorcycle maker - reported recently that sales fell in January as local demand declined. Sales of motorcycles, three-wheeled auto rickshaws and scooters fell 16 percent to 192,193 in January from 229,583 a year earlier. That aggregate number included exports of 43,533 units, a gain of 9.3 percent.

But there seems to be something of a tussle going on between the Finance Ministry and the Central Bank over what to do about the situation. India's government announced on Feb 7 that India's economy may well only expand by 8.7 percent in the fiscal year ending March 31, which would be the slowest pace in three years, and the slowdown is in part the result of higher interest rates, and in part a consequence of the higher rupee, which makes India's exports more expensive.


On February 12 Finance Minister Palaniappan Chidambaram asked state-run banks to provide more loans for the purchase of homes and consumer goods after asking banks to cut interest rates last month. But it is not clear that they are of the same mind over at the Reserve Bank of India. Inflation is constantly being stressed, and needs to be brought down further, according to central bank Deputy Governor Rakesh Mohan yesterday in New Delhi, speaking just before the announcement of a fuel-price increase. ``The inflation rate is still high by global standards," he is quoted as saying. The Singh cabinet approved raising the retail gasoline price by 2 rupees (5 U.S. cents) a liter and the cost of diesel by 1 rupee a liter,yesterday.

Previously, the government had capped fuel prices and lowered import duties over the past year to curb inflation. It hadn't allowed any rise in fuel prices since June 2006, even as the cost of crude oil surged 57 percent last year and climbed to $100 a barrel in January.

India Industrial Output December 2007

India's industrial production again in December as record investment in factories, roads and power plants increased demand for cement and steel. Production in factories, utilities and mines rose 7.6 percent over December 2006, after gaining a revised 5.1 percent in November, according to the statistics office in New Delhi today. So it seems that despite the pressure on India's export potential which comes from having a rising rupee, the pace of capital inflows and hence investment means that industrial expansion has a strongish underlying momentum.




Industrial production grew 9 percent in the nine months ended Dec. 31, less than the 11.2 percent gain in the same period in the previous year, the government said. Manufacturing in December rose 8.4 percent, led by a 16.6 percent increase in the output of capital goods such as plant and machinery.

Higher borrowing costs are prompting consumers to postpone purchases. Bajaj Auto Ltd., India's second-largest motorcycle maker, posted a 16 percent drop in sales in January, its 12th straight month of declines.

ABN Amro Bank NV's purchasing managers' index indicated manufacturing growth recovered in December from the previous month and fell again in January to the lowest level since September.

Prime Minister Manmohan Singh's government is spending 1.34 trillion rupees ($34 billion) in the year ending March 31, a 40 percent increase over the previous year, on roads, ports and power plants.

Economic expansion in India is still the second-fastest after China among the world's biggest economies. The economy has grown an average 8.8 percent since 2003, the fastest expansion since the country's independence in 1947.

India's middle class, defined as those with annual disposable incomes between $4,380 and $21,890, has more than doubled to 50 million in the past decade, according to McKinsey & Co., the New York-based consulting firm.