June 12 (Bloomberg) -- India's industrial production unexpectedly rose for the first time in three months, suggesting interest-rate cuts and government stimulus measures are helping resuscitate demand in Asia's third-biggest economy.
Output at factories, utilities and mines advanced 1.4 percent from a year earlier after a revised 0.75 percent drop in March, the statistics agency said in New Delhi today. Economists expected a contraction of 0.1 percent.
Six interest-rate cuts since mid-October and three fiscal stimulus packages are giving India a boost worth almost 7 percent of gross domestic product, the central bank estimates. Prime Minister Manmohan Singh's government will increase spending and plans to allow greater overseas investment to revive an economy growing at the slowest pace since 2003.
"I think we have now passed the bottom," said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore. "Although the output growth is unlikely to go vertical, improving external and domestic demand will" help production grow between 5 percent and 8 percent by the end of 2009, he said.
Lower interest rates, tax cuts on consumer products and higher spending by the government are already bolstering demand even as exports plunge. Coal production in April rose 13.2 percent, more than twice the pace in March, while the growth in cement output accelerated to 11.7 percent.
Manufacturing expanded at the fastest pace in eight months in May, helped by domestic demand, according to Markit Economic's Purchasing Managers' Index. India's exports fell 33.2 percent from a year earlier in April as the global recession cut demand for the nation's goods.
Budget Plan
Governments the world over are relying on higher spending to expand "opportunities for growth of output and employment," Prime Minister Singh told parliament in New Delhi on June 9. "That is what we should do" without worrying about the widening fiscal deficit, he said.
Finance Minister Pranab Mukherjee will unveil Singh's economic plans when he presents the budget in the first week of July. The Reserve Bank of India cut its repurchase rate by 4.25 percentage points to 4.75 percent from Oct. 20 to April 21. It also reduced the reverse repurchase rate to 3.25 percent to reduce the cost of lending and stimulate domestic demand.
India's benchmark stock index has risen 27 percent since the May 16 re-election of Singh's Congress-party-led alliance on optimism higher government spending will boost company profits. The $1.2 trillion economy stabilized in the three months to March, maintaining the 5.8 percent pace of expansion recorded in the preceding three months.
The central bank expects the economy to grow 6 percent in the fiscal year that started April 1, the slowest pace of expansion since 2003. Annual growth averaged 8.5 percent in the previous five years.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net .
Output at factories, utilities and mines advanced 1.4 percent from a year earlier after a revised 0.75 percent drop in March, the statistics agency said in New Delhi today. Economists expected a contraction of 0.1 percent.
Six interest-rate cuts since mid-October and three fiscal stimulus packages are giving India a boost worth almost 7 percent of gross domestic product, the central bank estimates. Prime Minister Manmohan Singh's government will increase spending and plans to allow greater overseas investment to revive an economy growing at the slowest pace since 2003.
"I think we have now passed the bottom," said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore. "Although the output growth is unlikely to go vertical, improving external and domestic demand will" help production grow between 5 percent and 8 percent by the end of 2009, he said.
Lower interest rates, tax cuts on consumer products and higher spending by the government are already bolstering demand even as exports plunge. Coal production in April rose 13.2 percent, more than twice the pace in March, while the growth in cement output accelerated to 11.7 percent.
Manufacturing expanded at the fastest pace in eight months in May, helped by domestic demand, according to Markit Economic's Purchasing Managers' Index. India's exports fell 33.2 percent from a year earlier in April as the global recession cut demand for the nation's goods.
Budget Plan
Governments the world over are relying on higher spending to expand "opportunities for growth of output and employment," Prime Minister Singh told parliament in New Delhi on June 9. "That is what we should do" without worrying about the widening fiscal deficit, he said.
Finance Minister Pranab Mukherjee will unveil Singh's economic plans when he presents the budget in the first week of July. The Reserve Bank of India cut its repurchase rate by 4.25 percentage points to 4.75 percent from Oct. 20 to April 21. It also reduced the reverse repurchase rate to 3.25 percent to reduce the cost of lending and stimulate domestic demand.
India's benchmark stock index has risen 27 percent since the May 16 re-election of Singh's Congress-party-led alliance on optimism higher government spending will boost company profits. The $1.2 trillion economy stabilized in the three months to March, maintaining the 5.8 percent pace of expansion recorded in the preceding three months.
The central bank expects the economy to grow 6 percent in the fiscal year that started April 1, the slowest pace of expansion since 2003. Annual growth averaged 8.5 percent in the previous five years.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net .
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