IIP slumps 2.3% in March

NEW DELHI: India���s industrial production for March registered its sharpest fall in 16 years, contracting 2.3% over the corresponding month a year ago, but prospects of an upward revision kept the sentiments alive and economists predicted a recovery in the April numbers.

The slump was expected as various lead indicators such as the purchasing managers��� index (PMI) for the month had pointed to a contraction. That the drop in the Index for Industrial Production (IIP) was limited to 2.3%, which may be revised upwards once the final numbers come in, is in fact being seen as a positive. IIP was reported to have contracted 1.2% in February, but later revised upwards to 0.7%.

Shubhadha Rao, chief economist at Yes Bank, said the latest data suggested that a recovery in IIP led by consumption was imminent. ���We expect a 3.5% growth in IIP for the coming year. We are likely to see the index entering the positive zone from April onwards,��� Ms Rao said.

Saumitra Chaudhari, principal economic advisor at ICRA, said IIP has been underestimating industrial growth by 3-4% over the years.

���This is evident from the difference between growth in manufacturing as captured by IIP and GDP. So, at best, the IIP numbers are indicative of a trend. But a contraction in industrial output is baseless,��� said Mr Chaudhari.
A dismal growth of 2.7% shown by IIP in manufacturing subsectors like non-metallic mineral products, which include products such as cement, gives strength to Mr Chaudhari���s observation.

JK Cement group executive president RG Bagla pointed out that increased government spending on infrastructure led to a higher demand for cement in March and the segment has grown more than 10%.

ABN Amro India senior economist Gaurav Kapur said the PMI for April gave a clear indication that business conditions in the manufacturing sector had improved significantly after a period of sharp contraction and gradual stabilisation. ���The headline PMI at 53.3 has signalled expansion in activity for the first time since October 2008. Moreover, the April reading is the strongest since October 2008,��� he said.

The March figures were pulled down mainly by a sharp 8.2% contraction in the production of capital goods. This trend was dismissed by Goldman Sachs as an aberration caused by high base effect, and a company note said growth would pick up from hereon.

While manufacturing dropped into negative territory, growth in electricity generation touched a 12-month high, and mining also moved into positive territory. Beverages, tobacco and related products, basic chemicals & chemical products, and transport equipment and parts are among five subsectors in manufacturing that showed positive growth.

���Looking forward, we expect an uptick in the April industrial production. The PMI for April has shown its first expansion after contracting for five successive months. While car sales picked up in the last three months, railway freight has also shown some increase. Excess liquidity in the system, substantial easing of financial conditions and decline in some key interest rate spreads suggest to us that activity will pick up in the second half of the current fiscal,��� said the note.