Indian industry growth hits 6-yr low, inflation jumps

Indian industrial output grew at its slowest rate in six years in May, but a jump in inflation to nearly 12 percent dashed any hopes that weakening growth could persuade the central bank to hold off with interest rate rises.

The central bank's tightening campaign to tame price pressures stoked by soaring oil costs bit into consumption and capital goods production in the $1 trillion economy, casting doubt over official forecasts for 8.0-8.5 percent economic growth this fiscal year.

But economists saw no respite on rates even after two increases in June, given that inflation has more than tripled over the past sixth months, raising the spectre of a backlash against the government at elections due by May 2009.

"The slowdown is across the board with both consumer and capital goods much weaker than expected," said Sonal Varma, economists at Lehman Brothers in Mumbai.

"Slowing growth and rising inflation adds to the monetary policy dilemma," she said, adding she expected the central bank to raise its key lending rate from 8.5 percent later in July.

The benchmark stock index fell sharply after the output data, bringing the day's losses to more than 2 percent. The 10-year bond yield edged down 2 basis points to 9.42 percent, in a sign the market judged the central bank might now be only slightly less aggressive than anticipated with future policy tightening.

Industrial output rose 3.8 percent in May from a year earlier, sharply less than previous month's downwardly revised 6.2 percent and well below forecasts for 7.2 percent. It is the slowest rate of growth since March 2002.

Manufacturing production rose 3.9 percent in May from a year earlier and capital goods output growth slowed to 2.5 percent annually, compared with a fierce 22.4 percent a year ago.

The output data coincided with the release of the wholesale price index, India's most widely watched inflation measure, which rose 11.89 percent in the 12 months to June 28. The rise was the highest since annual numbers in the current series became available in April 1995, outstripping the previous week's annual rise of 11.63 percent and the market's 11.75 percent forecast.

As well as raising interest rates, the central bank has jacked up banks' reserve requirements as part of its campaign to stamp out knock-on price increases expected from a 10 percent rise in administered fuel prices in June.

Robert Prior-Wandesforde, an economist at HSBC in Singapore, said the central bank was less concerned about growth than inflation, which he thought would hit 15 percent later this year. Accordingly, he expected the monetary authority to raise both interest rates and banks' reserve requirements again at a policy review this month.

International rating agency Standard & Poor's said on Friday India's credit profile had worsened in the past year due to higher inflation and growing fiscal and current account deficits and the risks to its BBB- investment grade rating were increasing.

A4, the new Audi kid on the block

German luxury car maker Audi today launched its new Audi A4 sedan in the country. Prices of the new vehicle starts at Rs 29 lakh, and Audi is looking at this launch to help it achieve total sales of 1,000 cars by the end of this year.

With this, Audi will have five models in its portfolio. These are the A6, A8, TT, Audi Q7 and the A4. The company is planning to ramp up its presence in the luxury car segment through the introduction of new models and by opening more dealerships. Recently, the car maker indicated that it could launch its sports car, the R8, in India towards the end of this year.

The new Audi A4 is being launched with two engines —the “2.0 TDI multitronic” with a power-output range of 143 bhp and the “3.2 FSI tiptronic quattro” with 265 bhp. Both of them use the direct fuel injection principle. Among the two, while the first model will come at a ex-showroom price of Rs 29 lakh, the other car will be priced at Rs 36 lakh.

Audi plans to import the car initially and by the end of this year, built it locally as a completely knocked down unit at its facility in Aurangabad, Maharashtra. It now has five dealerships in the country and the new Audi A4 will be offered at five more locations coming up in the next six months — Ahmedabad, Chennai, Kochi, Calcutta and Ludhiana.

Called as the sportiest luxury sedan, the A4 has an overall length of 4.70 metres. Speaking to newspersons at the launch here today, Benoit Tiers, managing director, Audi India, said that the car also had a substantial road presence. He said that its 480-litre boot and the leg room for rear passengers are larger than any of its direct competitors.

The car is equipped with Audi Drive Select wherein drivers can adjust the operating characteristics of the engine, automatic transmission and steering to suit their preference and adjust suspension to suit the road conditions. It also features an optical parking system with a rear view camera and Bang & Olufsen sound system.

Audi, which sold close to 350 cars in India last year, is optimistic of its success in view of the strong growth of luxury cars in India.

Officials here said that the sales of such vehicles had been showing growth of over 200 per cent in some months.