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India was probably the world’s second-fastest growing major economy after China last quarter as rising consumer and government spending spurred manufacturing and services such as banking and mobile phones.
Asia’s fourth-largest economy expanded 8.4 percent in the three months to June 30 from a year earlier, after a 9.3 percent gain in the previous quarter, according to the median forecast of 15 economists in a Bloomberg News survey. India’s statistics department will unveil the economic report in New Delhi tomorrow.
India’s key stock index has climbed more than 45 percent in the past year as ACC Ltd., Tata Steel Ltd. and other companies benefit from a building boom stoked by government spending and as record bank lending fuels consumer demand. The International Monetary Fund this month raised its 2006 growth forecast for the $775 billion economy by 1 percentage point to 8.3 percent.
“The economy is on a roll and there are no immediate risks,'’ said R.K. Gupta, who manages the equivalent of $50 million of stocks at Credit Capital Asset Management Ltd. in New Delhi. “Retail and government spending should help the growth momentum to continue this fiscal year.'’
India’s economy has expanded more than 8 percent in four of the past five quarters. China’s $2.2 trillion economy, Asia’s second largest, increased 11.3 percent in the quarter ended June 30. That was the quickest pace among the world’s 20 largest economies and more than four times the 2.6 percent growth in the 12 European nations sharing the euro.
Infrastructure Spending
Growth in India’s economy is benefiting from Prime Minister Manmohan Singh’s decision to increase spending on roads, ports and other infrastructure by a quarter to 992 billion rupees ($21 billion) in the year that started April 1 in a bid to attract overseas manufacturing companies and spur growth to 10 percent over a decade. That will help cut poverty in a nation where 35 percent of 1.1 billion people lives on less than $1 a day.
Infrastructure spending is lifting demand for steel, cement and electricity in India, which spends a seventh of China’s $150 billion investment in public works each year according to Morgan Stanley. Industrial production, almost a quarter of India’s economy, grew 12.4 percent in July, the fastest pace in a decade.
In anticipation of rising demand, Tata Steel, the country’s second-biggest steel maker, plans to invest $15 billion over the next decade to raise the company’s production capacity six times to 30 million tons.
“India will require a lot of steel as it builds its infrastructure,'’ said B. Muthuraman, managing director of Tata Steel. He estimates India, which produces 38 million tons of steel annually, must add 5 million tons of capacity each year to meet the increasing demand.
Cement Makers
India’s push to improve its roads, bridges and ports has also made the South Asian nation the world’s biggest cement consumer after China, according to HeidelbergCement AG, Germany’s biggest cement maker, which in July paid about $100 million for a majority stake in India’s Mysore Cements Ltd.
Holcim Ltd., the world’s second-biggest cement maker, paid $477 million in May to win management control of Gujarat Ambuja Cement Ltd., a year after spending $800 million for a third of ACC Ltd., India’s biggest cement maker, to grab a share of the growing market.
“The ongoing expenditure on infrastructure will continue to have a positive effect on industrial production,'’ said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. “But higher interest rates, softening in retail demand, will cause industrial activity to moderate slightly.'’
Interest Rates
India’s central bank has increased its benchmark interest rate by 150 basis points since October 2004 to 6 percent, a four-year high, to keep record fuel costs and an expanding economy from stoking inflation beyond its forecast of between 5 percent and 5.5 percent by March 31.
“I can’t see an abrupt or dramatic slowdown in consumption growth,'’ India’s Finance Minister Palaniappan Chidambaram said in a Sept. 20 interview. “The Indian economy is being driven by consumption. At the moment, all sectors are demanding greater and greater credit.'’
Chidambaram said commercial bank loans to companies and individuals are growing at 33 percent on year, the fastest since the central bank started collating data in 1971.
Growth in consumer goods production more than tripled to 19.9 percent in July from a year earlier after a 5.6 percent rise in June, the government said Sept. 12. Manufacturing increased 13.3 percent from 9.9 percent in the previous month.
Mobile Phones
India’s Bharti Airtel Ltd., Reliance Communication Ventures Ltd. and other mobile-phone companies signed up a record 111.23 million users by the end of July, an increase of 5.28 million users in July, the nation’s telecom regulator said Aug. 10.
Consumer demand for manufactured goods and services is rising as agriculture production rose at the fastest pace in two years in the year ended March 31, increasing incomes of 650 million people who depend on farming for their livelihood.
In urban areas, computer companies such as International Business Machines Corp. and Microsoft Corp. are hiring more workers as software programmers’ wages in India are a sixth of those in the U.S. Overseas companies such as Aviva Plc, Britain’s biggest insurer, are also moving positions to the South Asian nation to cut costs.
Aviva this month said it plans to cut 4,000 jobs in U.K. and add 1,000 in India. The company, which employs 36,000 people in Britain, plans to have 7,800 workers in India by the end of next year.
