India factory output growth slows

12 July 2011 Last updated at 08:07 GMT Manufacturing activity in India has slowed down in wake of the tightening monetary policy India's factory output grew at a weaker-than-expected rate in May as manufacturing activity slowed.

Industrial output grew by 5.6% in May compared with the same month last year, latest government data showed.

Manufacturing, which accounts for 80% of overall industrial output, also rose by 5.6% in May, compared with growth of 8.9% a year earlier.

The figures come at a time when India has been tightening its monetary policy in an attempt to rein in growth.

"Overall, the data provides further affirmation of the moderating growth trends," said Radhika Rao of Forecast Pte.

Inflation vs growth

India's economy has witnessed robust growth in the past couple of years.

However, the success has come at a price. Consumer prices in the country have surged, affecting the cost of living and becoming a hot political issue.

Continue reading the main story

This data is unlikely to prevent the RBI from further modest tightening in the second half”

End Quote George Worthington IFR Markets As a result the government and the Reserve Bank of India (RBI) have intervened to ensure that prices remain in check

The central bank has raised interest rates in the country 10 times since March 2010

Analysts said that with the government focusing on controlling prices, other sectors are likely to suffer.

"We are seeing definite signs of slowdown in interest-rate sensitive sectors," said Rupa Rege Nitsure of Bank of Baroda.

Further tightening?

However, despite the slowdown, analysts said that it was unlikely that the government would change its focus.

They said that given the robust expansion that India's economy has seen in recent times, the current figures are not likely to have a big impact.

"A period of subdued growth should not be a major concern for the authorities," said George Worthington of IFR Markets.

"This data is unlikely to prevent the RBI from further modest tightening in the second half," he added.

Mr Worthington added that manufacturing activity was likely to improve in the coming times "as new investments come on stream, allowing a faster rate of growth without adding to inflationary pressures".

View the original article here

Growth pains

10 July 2011 Last updated at 15:36 GMT By Mukul Devichand Reporter, BBC News The Pawars took financial advice when they started losing their savings

The world is jealous of Asia's sky-high growth rates, but for ordinary people the price of success is corrosive inflation which could eat away their savings.

"From outside it looks good," says Manasi Pawar. "We're staying in a big house, paying so much in rent and our kids are going to great schools."

Manasi, a qualified software worker in hi-tech Hyderabad in India, recently became a full-time mother. Her husband also works in the IT industry.

The couple epitomise the emergence of a well-to-do middle class in Asian countries - except there's one significant snag.

"We were actually losing money," says Manasi.

The couple recently woke up to the fact that inflation rates of nearly 9% meant that their savings were actually disappearing in front of their eyes.

"We were sitting on a bunch of cash but we didn't know where to put it, and it's important that we don't let it lie there in the bank - because a bank doesn't give an interest rate that even matches the inflation rate," she says.

Intense inflation

The inflation rate measures how fast prices are going up.

Across Asia, various pressures are pushing inflation up - from growing wage bills to the high global prices of food, commodities and fuel in resource-hungry economies.

Continue reading the main story

Across Asia millions of newly middle class families are making personal finance decisions for the first time. We look at the big issues facing them.

The pressures are so intense that some economists fear that inflation will now derail Asia's high economic growth altogether.

Inflation is the price that ordinary Asians are paying for high growth rates.

For the less well-off, who spend their money on food and fuel, the story is even worse. The rise in their household expenses at the moment is usually higher than headline inflation rates.

According to the International Monetary Fund, last year consumer prices rose 13.2% in India, 11.7% in Pakistan and 9.2% in Vietnam. Other Asian nations coped better but the average for developing Asia was 6% - compared to a 1.6% average rise in prices in advanced economies.

The speed at which prices are shooting up means that unless people find ways to save and invest effectively, they in fact get much poorer - even if Asia is getting richer.

Protected by pay rises?

"You don't need to worry too much if you're earning current rupees," advises Monika Halan, editor of Mint Money. "But the retired, the lower middle class and the poor have to worry."

Monika Halan, editor of Mint Money, on how India's new middle class can protect against high inflation

Wages for employed people tend to rise along with inflation. Most workers still get an annual pay rise, which protects them to some degree. Some younger Indians don't even notice inflation's effects, as their pay swells every year.

But it's different if you live off money you have saved up. Anyone relying on their savings could be losing more than a 10th of their money each year - particularly hitting the elderly and retired.

The poorest people in society, who spend disproportionately more on food, are hit most savagely of all.

But there is a way to fight back against inflation: to save, and to put some of that money in a part of the economy that rises along with inflation.

For most people, that means investing in shares or equities. "The only way you can make money long-term is through an equity linked product," says Ms Halan.

Money in the bank in India may only earn 3% or 4% - which in fact means you are losing money. But equity linked funds in this exploding economy have risen much faster, sometimes as high as 25%.

Products with higher returns

But many Indians prefer to buy gold jewellery or property and do not understand or trust equities and shares. "The sad part is there is still a trust deficit - people don't trust the process of equity investing," said Halan.

In India heavy investment in gold is more common than in trust equities and shares

Manasi and her husband, Raghavendra, turned to a financial planner for advice on how to access savings products with higher returns. "We have to accept the fact that we are not the gurus in this market," said Raghavendra.

India now has a booming industry of financial advisers. But most people still go it alone when it comes to saving, although the majority do save something.

Unlike Western nations, India and the rest of Asia are home to the world's highest savings rates.

"But don't overdo it!" says Manasi with a smile. The couple are conscious of the fact that their rising incomes can best be enjoyed in the present.

"You can't put all your money into savings and be left with nothing for now," she says.

The opinions expressed are those of the contributors and not held by the BBC. The material is for general information only and does not constitute investment, tax, legal or any other form of advice. You should not rely on this information to make any investment decisions. Always obtain independent, professional advice for your own particular situation.

View the original article here

Driving growth

13 June 2011 Last updated at 00:18 GMT By Sanjoy Majumder BBC News, Chennai Brand new cars board at Chennai en route to Singapore, Lebanon and Israel The Panama-registered M V Modern Peak steams into the newly commissioned Ennore Port, just north of Chennai on India's south-eastern coast.

It is a Korean freighter that has just arrived from Chittagong in Bangladesh, empty.

At the dock, rows of gleaming, brand new Nissan Micra cars are waiting to be loaded on board and shipped to Singapore.

"From there they'll go on to Lebanon, Israel and parts of north Africa," the ship's Korean captain says.

The cars may be a product of the Japanese giant auto maker but they are manufactured about 60kms away, at Nissan's Indian factory.

Less than a year old, the sprawling 600-acre plant is one of the company's largest worldwide.

At its high-tech assembly line, Indian workers work swiftly, putting together the latest models.

Nissan is among several major Asian companies that have set up manufacturing hubs in this area.

Rapidly growing market

A short drive down the congested highway, packed with large container trucks, and you'll pass the facilities of Hyundai, Samsung, Mitsubishi and myriad others.

"India is a rapidly growing market, so therefore it is very important for global auto manufacturers," says Nissan's managing director in India, Kiminobu Tokuyama.

But they are not just hoping to capture the local market.

Continue reading the main story

But we Koreans are trying hard to adjust. We also want to introduce Indians to our culture, food, language. That way, we can make new friends”

End Quote KH Shin Korean living in India They are also using India as a hub for products aimed at overseas markets.

"We are also exporting our products from India to Europe, Africa, Middle East and other places," Mr Tokyama says.

For years, it was the West that engaged with India.

The rest of Asia chose to ignore it - it was a country they did not really understand or want to do business with.

Now, because of its rapidly growing economy and increasing opportunities, India is home to sizeable numbers of Asians, especially Koreans and Japanese.

Chennai alone has close to 3,000 Koreans and Little Koreas are springing up in pockets around the city.

On a weekday evening, the brightly-lit In Seoul restaurant is packed to capacity.

Almost all patrons are Asian - though there are a few Europeans and the odd Indian - enjoying barbecued Korean meat with accompaniments.

Inside a private dining room, a large group of Koreans and Indians are seated around a table on the floor.

It is piled high with food and the alcohol is flowing.

KH Shin, who has lived in the city for eight years, is regaling them with his version of the latest Bollywood number and receives loud cheers for his efforts.

"It's not easy for us - the language, food and culture is so different from ours," he says.

"But we Koreans are trying hard to adjust. We also want to introduce Indians to our culture, food, language. That way, we can make new friends."

So apart from a few restaurants, Chennai has a couple of Korean supermarkets, a Korean church and cultural centres which offer Korean language, dance and Taekwondo classes.

Making profits

But it is not all one-way movement.

Suresh Krishna says his firm is one of the few foreign companies making a profit in China

India may be known now as an information technology superpower but it has a long tradition of manufacturing.

Now they are using it to make inroads into the regional economy.

Sundram Fasteners is a 100-year-old Indian company making auto parts. It is a major supplier to global giants such as General Motors, Chrysler and Ford.

Six years ago they opened a factory in China.

"The whole idea was to develop the Chinese market. We are looking at China 25 years from now," says the company's chairman, Suresh Krishna.

"We knew initially there would be a lot of agony because people were not used to Indians coming and setting up a company.

"But it has paid off. In the last year or so we have begun making profits which is not what many other foreign companies are experiencing in China."

Since the 1990s the world has been beating a path to India but of late, its attention has turned east - there is a sense here that India's future is tied closely to Asia.

It is a powerful new relationship that could well determine the course of the global economy.

View the original article here