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.

Indian Wholesale Inflation 26 January 2008

India's inflation accelerated at the end of January to the highest rate in more than five months as prices of fruits, spices and salt increased. Wholesale prices rose 4.11 percent in the week ended Jan. 26 from a year earlier, faster than the previous week's 3.93 percent, the Ministry of Commerce and Industry said today in New Delhi.




Inflation accelerated in the week as prices of manufactured goods, accounting for 64 percent of the wholesale price index, rose 0.3 percent from the previous week.

The Reserve Bank of India kept the benchmark interest rate unchanged last week on concern rising fuel and food prices may fan inflation. The central bank has also allowed the rupee to appreciate to reduce the cost of imports and curb price gains.

That's helped the government damp inflation, which reached a more than two-year high of 6.69 percent almost exactly a year ago.

Inflation is a sensitive issue in the $906 billion economy and rising prices may cause the Congress party to lose votes in forthcoming elections. The term of Singh's government ends June 1, next year. The ruling Congress party lost elections in four states in 2007, reducing its influence in parliament. The party was ousted in Punjab and Uttarakhand states and fell further behind in the nation's most populous provinces of Uttar Pradesh and Gujarat.


In the meantime the capital inflows continue, and India's foreign exchange reserves rose in the week ending February 1, to $292.6 billion dollars, from $288.3 billion a week earlier.

India Wholesale Prices and Fx Reserves 19 January 2008

India's wholesale inflation unexpectedly accelerated to a five-month high in the middle of January, vindicating the central bank's decision this week to refrain from cutting interest rates. Wholesale prices rose 3.93 percent in the week ended Jan. 19 from a year earlier, faster than the previous week's 3.83 percent, the Ministry of Commerce and Industry said today in New Delhi.



India's central bank in its Jan. 29 monetary policy announcement left the repurchase rate unchanged at 7.75 percent, maintained the reverse repurchase rate at 6 percent, and held its cash reserve ratio at 7.5 percent. The Reserve Bank may come under renewed pressure after the U.S. Federal Reserve cut the benchmark interest rate by half a percentage point to 3 percent on Jan. 30, the second cut in nine days, to avert a recession in the world's largest economy. Certainly, going by the foreign exchange reserves data capital inflows to India continue at a nifty pace, and they rose from 284.8 billion dollars to 288.3 billion dollars in the week ending 25th January 2008.

India Inflation 12 January 2008

India's inflation remained below the RBI's year-end target for the eighth month in a row as the government continued to mainatin a cap on retail fuel prices, making it more likely the central bank will maintain interest rates at a 5 1/2 year high. Wholesale prices rose 3.83 percent in the week ended Jan. 12 from a year earlier, faster than the previous week's 3.79 percent, the Ministry of Commerce and Industry said today in New Delhi.




The Reserve Bank of India - which aims to keep inflation below 5 percent - is due to meet on Jan. 29 to review rates. It has raised its benchmark interest rate nine times since October 2004 in order to keep a tight rein on prices and as a result has succeeded in dragging down inflation from a two-year high of 13.1% reached in January 2007.


The Reserve Bank is expected to come under pressure after the U.S. Federal Reserve cut the target overnight lending rate on Jan. 22 by three quarters of a percentage point to 3.5 percent. The Fed rate cut widened the spread between two-year Indian government bonds and similar maturity U.S. Treasury notes to 5.40 percentage points from 5.01 percentage points a week earlier. Finance Minister Palaniappan Chidambaram noted in Davos yesterday that the unexpected cut in the U.S. interest rates may increase capital flows to India and the central bank would have to respond appropriately to tackle inflows.

Pressure may also mount on the Rupee, which rose 12.3 percent in 2007, leading it to appreciate further on higher overseas inflows as investors try to take advantage of high-yielding emerging market assets. The rupee has gained 0.2 percent after the Federal Reserve cut its key interest rate to the lowest since 2005.