Industrial production up 10.9%

India's industrial production grew more than expected in January, stoked by surging consumer demand.

Production at factories, utilities and mines increased 10.9 per cent from a year earlier, following December's revised 12.5 per cent gain, the Central Statistical Organisation said in New Delhi today. Analysts expected a rise of 10.1 per cent.

"The production data suggests consumer demand continues to be strong,"' said N R Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. "The central bank may have to raise borrowing costs to remove excess monetary accommodation."

Rising consumer demand fuelled by unprecedented bank lending and higher salaries has pushed inflation to nearly a two-year high. Maruti Udyog Ltd, India's biggest carmaker, last month posted its fastest sales growth in three years.

Reserve Bank of India Governor YV Reddy has raised the overnight lending rate five times since January 2006 to a four-year high of 7.5 per cent, to slow inflation, currently at 6.1 per cent. The central bank, which has a 5 per cent target for inflation, next meets in Mumbai on April 24.

India's $854 billion economy will probably expand a record 9.2 per cent in the year to March 31, following 9 per cent growth in the previous year, the government said on February 7. That's the fastest pace after China among the world's major economies.

China rivalry: China's industrial production gained 14.7 per cent in December after 14.9 per cent growth in the previous month. Still, Credit Suisse in December forecast India's economy would grow 10 per cent this year from 9.5 per cent in 2006, overtaking China. It expects China to grow 9.9 per cent in 2007.

India's manufacturing output increased 11.6 per cent in January from a year earlier, according to today's report. Mining grew 6 per cent and electricity gained 8.5 per cent.

Besides record loans growth, India's industrial production, which makes up a quarter of the economy, is being spurred by rising incomes and savings.

Foreign Investment: Overseas companies are investing more in India to take advantage of growing demand.

In information technology and communications business, for example, Vodafone Group Plc, the world's largest wireless carrier, and other foreign companies have committed investments worth $19.92 billion in India, the world's fastest growing major wireless market, according to the government.

Demand is also being aided by rising salaries. Workers in India this year can expect a 7 per cent increase in annual real salary, after adjusting for inflation, the biggest rise among the 45 countries including the US and Japan surveyed by human resources consultant ECA International.