World Business

Indian manufacturing output growth slows

By Kartik Goyal (China Daily)
Updated: 2010-07-02 10:30

NEW DELHI - India's manufacturing growth slid in June from a 27-month peak in May as orders and output grew at a slower pace.

Workers assemble a Skoda Fabia automobile inside the Volkswagen India plant in Chakan, India. The nation’s economy expanded 8.6 percent in the ? rst quarter of this year from a year earlier, but now growth may be cooling. [ADEEL HALIM / BLOOMBERG]

The Purchasing Managers' Index declined to 57.3 from 59 in May, HSBC Holdings Plc and Markit Economics said in an e-mailed statement.

The nation joined China and South Korea in reporting weaker gains in manufacturing, suggesting that growth may slow in the region leading the global recovery. The moderation may not be enough to prevent the Reserve Bank of India from raising benchmark interest rates after inflation accelerated in May and the government raised fuel prices.

"This should ease worries about overheating, although it doesn't eliminate the need to hike interest rates," said Frederic Neumann, an economist at HSBC. "Growth momentum remains strong in India, with consumption and services picking up speed, even as manufacturing slows because of a fading policy stimulus."

The yield on the 10-year government bond dropped three basis points to 7.52 percent at 1:20 pm in Mumbai and the Bombay Stock Exchange's Sensitive Index fell 1.2 percent to 17,493.58.

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The Indian government last week allowed state refiners including Indian Oil Corp to raise gasoline prices as it seeks to trim the budget deficit from a 16-year high.

The government's move may increase the inflation rate by almost a percentage point from 10.16 percent in May, according to Kaushik Basu, chief economic adviser in the finance ministry.

India's economy grew 8.6 percent in the first quarter from a year earlier as Asia rebounded from the financial crisis. Now, the growth may be cooling.

In India, monetary policy decisions may be complicated by a cash squeeze at banks after companies including Bharti Airtel Ltd paid 1.06 trillion rupees ($22.7 billion) to buy high-speed mobile phone and internet services and businesses borrowed money to pay taxes.

Bloomberg News