Festivals inauspicious for IIP, dips to 5.3%
Industrial production grew 5.3% in November 2007 from a year earlier, at the slowest rate this fiscal. The cumulative growth for the first eight months of the fiscal stood at 9.2%.
By TNN |
NEW DELHI: Industrial production grew 5.3% in November 2007 from a year earlier, at the slowest rate this fiscal. The cumulative growth for the first eight months of the fiscal stood at 9.2%. Economists expect November’s low growth rate to be a statistical blip rather than reflection of a tangible slowdown in the economy.
Economists attributed the lower figure to a cutback in production in the festival month after aggressively building up inventory in the previous months to meet the demand, apart from a high base in November 2006 when industrial output had risen 15.8%. Industries like cement are running at near-full capacity, so it is difficult to increase production till the ongoing capacity addition is completed.
During the festival month, industry too shuts down manufacturing plants for some time. Last year, Diwali fell in October, and so did the growth rate of the index of industrial production (IIP), to 4.5%. However, the index rose sharply in the post-festival month of November last year, setting up a spike from which to measure the growth rate this November. The current fiscal saw Diwali celebrations in November.
A combination of high base effect and slowdown in the consumer durables segment due to high interest rates and fewer working days in the month due to the festive season contributed to the decline, economists said. Industrial production represents one-fourth of the total value of goods and services produced in the country.
Basic goods such as cement, crude oil and steel slowed down and consumer durables such as car and refrigerators turned in negative growth. As a result, the manufacturing sector, the biggest segment of industrial production, registered a sluggish growth of 5.4% compared to 17.2% in November a year ago.
This dragged down the overall industrial production growth to one-third the level of what it was in November the previous year. Besides, the slowdown in core infrastructure — which accounts for 26.9% in the IIP — too led to sluggish growth in November. The slowdown was visible in almost all segments in November. Mining and electricity slowed down to 3.5% and 5.8% respectively compared to 8.8% and 8.7% last year.
Icra economic adviser Saumitra Chaudhari said, “It’s a one-month phenomenon as production usually falls in the month after Diwali. Overall, the growth was sluggish due to a fall in demand for consumer goods and exports,” he said. The growth will pick up next month to 8-9% and will remain in the range of 9% for 2007-08,” he said.
Crisil director and principal economist D K Joshi said, “The growth is far less than the expected 7%. RBI’s tight monetary policy aimed at curtailing demand for money impacted the consumer durables segment. Besides, the high base effect led to a further slowdown.”
Meanwhile, production during April-November registered a growth of 9.2% compared to 10.9% for the same period last year. For the April-November period, manufacturing growth worked out to 9.8% compared to 11.8% recorded in the same period last year. During the eight-month period, manufacturing grew at a lower pace of 9.8% against 11.8% and electricity by 7% against 7.3%.
Economists attributed the lower figure to a cutback in production in the festival month after aggressively building up inventory in the previous months to meet the demand, apart from a high base in November 2006 when industrial output had risen 15.8%. Industries like cement are running at near-full capacity, so it is difficult to increase production till the ongoing capacity addition is completed.
During the festival month, industry too shuts down manufacturing plants for some time. Last year, Diwali fell in October, and so did the growth rate of the index of industrial production (IIP), to 4.5%. However, the index rose sharply in the post-festival month of November last year, setting up a spike from which to measure the growth rate this November. The current fiscal saw Diwali celebrations in November.
A combination of high base effect and slowdown in the consumer durables segment due to high interest rates and fewer working days in the month due to the festive season contributed to the decline, economists said. Industrial production represents one-fourth of the total value of goods and services produced in the country.
Basic goods such as cement, crude oil and steel slowed down and consumer durables such as car and refrigerators turned in negative growth. As a result, the manufacturing sector, the biggest segment of industrial production, registered a sluggish growth of 5.4% compared to 17.2% in November a year ago.
This dragged down the overall industrial production growth to one-third the level of what it was in November the previous year. Besides, the slowdown in core infrastructure — which accounts for 26.9% in the IIP — too led to sluggish growth in November. The slowdown was visible in almost all segments in November. Mining and electricity slowed down to 3.5% and 5.8% respectively compared to 8.8% and 8.7% last year.
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Icra economic adviser Saumitra Chaudhari said, “It’s a one-month phenomenon as production usually falls in the month after Diwali. Overall, the growth was sluggish due to a fall in demand for consumer goods and exports,” he said. The growth will pick up next month to 8-9% and will remain in the range of 9% for 2007-08,” he said.
Crisil director and principal economist D K Joshi said, “The growth is far less than the expected 7%. RBI’s tight monetary policy aimed at curtailing demand for money impacted the consumer durables segment. Besides, the high base effect led to a further slowdown.”
Meanwhile, production during April-November registered a growth of 9.2% compared to 10.9% for the same period last year. For the April-November period, manufacturing growth worked out to 9.8% compared to 11.8% recorded in the same period last year. During the eight-month period, manufacturing grew at a lower pace of 9.8% against 11.8% and electricity by 7% against 7.3%.
Mining, however, improved by 4.9% against 4.2%. Within the manufacturing sector, food products, jute and other vegetable fibre textiles and metal products showed a negative growth.
As per user-based classification, basic goods, capital goods and intermediate goods slowed down in November. Basic goods like cement and intermediate goods registered a growth of 4.8% and 7.3% compared to 12.1% and 17.9%. The growth in capital goods segment too went down to 24.5% against the previous 29.4%.
“The slowdown in the segment is hard to detect but it could have a spillover effect on physical infrastructure such as roads, airports, construction etc,” HDFC Bank chief economist Abheek Barua said.
The output of the consumer goods sector recorded negative growth of 2.6% in November compared to a rise of 13.5% last year.
Within the consumer goods sector, consumer durables segment showed a negative growth of 4.1% while output of consumer non-durables items recorded a negative growth of 2.1% compared to positive growth of 10.1% and 14.8% against the same period last year.
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During April-November, consumer durables registered a growth of 5.2% compared to 9.9% while it remained negative at 1.7% against 8.9% for consumer durables.
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