In India, Slump in Production Puts Pressure on Rupee By BLOOMBERG NEWS
MUMBAI — Indian industrial production unexpectedly contracted in March, according to government data released Friday, as weaker domestic demand and tumbling exports hurt the economy and undermined the central bank’s efforts to shore up a sliding rupee.
Production at factories, utilities and mines declined 3.5 percent from a year earlier, the Central Statistical Office said in a statement in New Delhi, compared with a 4.1 percent increase in February. Economists had predicted an increase of 1.7 percent.
The report may stoke concern that India’s outlook has worsened because of trade and fiscal deficits, political gridlock, inflation and the threat to global growth from the European debt crisis.
The risks have pushed the nation’s currency toward a record low, prompting the central bank, the Reserve Bank of India, to say Friday that exporters would have to convert half of their foreign currency earnings into rupees as the bank stepped up efforts to check the decline.
Manufacturing contracted 4.4 percent in March from a year earlier after a 3.9 percent advance in February, the data showed. Mining fell 1.3 percent, after a 2.7 percent gain the previous month. Electricity output rose 2.7 percent.
“The contraction in output data reconfirms weakening demand both domestically and externally,” said Radhika Rao, an economist in the Singapore office of Forecast, a financial market analysis company. “Even though growth is slowing, from the policy perspective, the focus will be more on inflation, especially due to the impact of the huge decline in the rupee on prices.”
The Indian currency has lost more than 16 percent of its value over the past year, the most among Asian currencies.
The central bank cut interest rates last month for the first time since 2009 to bolster spending at home. The bank cited price pressures from the fiscal deficit, energy costs and the weaker rupee.
“We are in a scenario where the tendency for interest rates is going to be downwards,” Subir Gokarn, a deputy governor of the Reserve Bank of India, said in Bangalore on Friday. “The pace and the magnitude is obviously going to be determined by how inflation goes, but the direction is now fairly evident.”New York Times (May 11, 2012)
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