IIP surge = another rate-hike round

MUMBAI: Industrial output, the Central Statistical Organisation said on Monday, jumped up 10.9% in January from a year earlier, powered by surging consumption across sectors.

Economists said this means the Reserve Bank of India can be expected to tighten the monetary regime once again, in order to temper demand and tackle inflation, especially manufacturing inflation.

“I expect the RBI to hike the repo and reverse repo rates by 25 basis points in its April monetary policy review. I don’t think they will hike the cash reserve ratio any further because they have shifted to MSS (market stabilisation scheme) auctions to suck out liquidity now,” said Abheek Barua, chief economist, ABN Amro Bank.

He says he was surprised by the high growth in IIP because all indicators like ABN Amro’s purchasers managers index, credit offtake and exports have declined.

Shuchita Mehta, economist, South Asia, Standard Chartered Bank said the next round of rate hikes will slow down consumption.“

This, and a significant decline in exports owing to softer global growth will mean GDP growth could be in the 8.1% range in the next financial year compared with around 9% this year,” Mehta said.

Industrial production in January was a little slack compared with December’s 12.5% and November’s 15.4%, but the cumulative growth for the fiscal stands at 11% against 8.5% in the year-ago period, underscoring that the momentum remains.

That’s good enough for the government to reach its 9.2% GDP growth goal for the current fiscal, analysts said.

Output has been strong over the past few months as income levels have risen.

“Consumption demand is still strong and power companies are working close to capacity,” Indranil Pan, economist at Kotak Mahindra Bank, told Bloomberg.

Human resources consultant ECA International said annual real salaries (adjusting for inflation, that is) in India could go up 7%, the biggest rise among the 45 countries including US and Japan.

Monday’s data showed that 16 out of 17 industry groups registered output growth in January 2007. Manufacturing is leading the charge, but unlike last year mining and electricity, too, have started making significant contribution.

Manufacturing rose 11.6% in January against 9.4% a year ago, while mining rose three-fold at 6% from 2%.

The electricity sector grew by 8.5% in January this year against 6.4% in the same month last year.

But the real turn-around was in mining where production was up 4.5% against just 0.6% during the first 10 months of the last financial year.

— With inputs from Priya Ranjan Dash in New Delhi