Industry output hits six-year low
Growth in industrial production decelerated to 3.8% in May 2008, lowest in six years, triggering fears of a sharper-than-expected slowdown.
By ET Bureau |
NEW DELHI: Growth in industrial production decelerated to 3.8% in May 2008, lowest in six years, triggering fears of a sharper-than-expected slowdown.
Combined with high inflation, political instability and apprehensions over a downward revision in the country���s credit rating, the slower growth in industrial production has heightened concerns over a global slowdown weighing the Indian economy down.
Adding to the gloom was the downward revision in industrial production growth for April to 6.2% as compared to the provisional figure of 7%.
Many analysts feel industrial growth would remain moderate in coming months, as they do not see any let-up in high interest rates. Lacklustre performance in manufacturing and electricity generation was behind the poor growth in industrial output during May.
The cumulative industrial growth, as measured from the index of industrial production (IIP), in the first two months of the financial year stood at 5% against 10.9% growth in the same period last fiscal, according to the official data released on Friday.
High interest regime seems to have taken a toll on the manufacturing sector that has almost two-third weightage in the IIP. It grew by a meagre 3.9% in May 2008, as compared to 11.3% in May 2007.
Combined with high inflation, political instability and apprehensions over a downward revision in the country���s credit rating, the slower growth in industrial production has heightened concerns over a global slowdown weighing the Indian economy down.
Adding to the gloom was the downward revision in industrial production growth for April to 6.2% as compared to the provisional figure of 7%.
Many analysts feel industrial growth would remain moderate in coming months, as they do not see any let-up in high interest rates. Lacklustre performance in manufacturing and electricity generation was behind the poor growth in industrial output during May.
The cumulative industrial growth, as measured from the index of industrial production (IIP), in the first two months of the financial year stood at 5% against 10.9% growth in the same period last fiscal, according to the official data released on Friday.
High interest regime seems to have taken a toll on the manufacturing sector that has almost two-third weightage in the IIP. It grew by a meagre 3.9% in May 2008, as compared to 11.3% in May 2007.
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Capital goods sector, which is largely seen as a lead indicator of investment activity, grew at a dismal rate of 2.5% as against a whopping 22.4% in May 2007. This segment has shown deceleration on a month-on-month basis as well ��� as compared to 2.5% in May, this sector had grown 11.4% in April 2008.
���Investment sentiment is weakening and some growth will have to be sacrificed to tame inflation. I think the downtrend will continue because of the overall contraction in economy. However, it has to be seen that last year, capital goods growth was very high; so, there could be some amount of base effect also,��� ICRIER director Rajiv Kumar said.
There are reports of companies postponing projects on account of high interest rates. While there is little possibility of interest rates coming down in future, overall growth could be over 7% in 2008-09, which is high by international standards, but lower than the 9% growth achieved last year.
���It (the deceleration) reflects the sentiment. Unless the sentiment bucks up, it will dampen investment outlook,��� said Ashok Leyland managing director R Seshasayee.
Analysts fear the deceleration may linger on. ���Though RBI, in its statement, has said that investment demand is strong and consumption is reviving, there appear to be clear signs that the consumption slowdown seen since last year has spilled over to the investment side. Thus, further monetary tightening poses downside risks to both our FY09 and FY10 GDP estimates of 7.7% and 7.9%, respectively,��� said a Citi economist.
Other experts feel the slow growth in capital goods could be a result of the base effect as the sector grew very fast in the same month last year. ���While the overall trend is declining. The 2.5% growth seen in capital goods may not be seen in the rest of the year. This could just be a blip and largely due to base effect,��� says DK Joshi, principal economist, Crisil.
Industry also remains upbeat and expects growth to continue. ���Our order book positions are full and we expect a 25% year-on-year growth this fiscal. However, in the electricity generation sector, the shortfall might be attributed to problems in the hydel sector and unavailability of coal due to tight supply positions,��� said Bhel CMD K Ravi Kumar.
The silver lining in the IIP data is the consumer durable and mining sectors. Consumer durables, which remained in the negative for about seven months in last fiscal, seems to have bounced back. The duty cuts in the budget, which were aimed at spurring demand in the sector, have had some impact. The sector witnessed a growth of 4.4% in May 2008, compared to a negative 0.7% in May 2007, but it is down from 5.4% in April 2008.
Consumer non-durables, comprising mainly FMCG, grew by 8.1% in May 2008, compared to a 12.1% in May 2007, and 9.5% in April 2008. Rise in prices of certain FMCG goods could have had a slight bearing on growth. Overall, consumer goods grew by 7.2% in May 2008, compared to 8.7% in May 2007.
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With demand for coal going up, mining sector witnessed a rise in output by 5.2% in May 2008, compared to 3.8% in the same month last year. However, electricity generation, a key consideration for the economy, grew by only 2% in May 2008, compared to 9.4% in May 2007.Power generation from the hydel sector could further during the monsoon season. ���Unprecedented rains in May led to the shortfall in power generation. Also, overhaul of many plants was delayed leading to shortfall in generation during May,��� an NTPC official said.
Basic goods saw a modest growth of 3% in May 2008, compared to 10.3% in May 2007. Intermediate goods also grew at a meagre rate of 1.2% in May 2008, compared to 8.8% in May 2007. In April 2008, basic goods grew by 4%, while intermediate goods by 3.3%.
In terms of industries, 11 out of 17 groups showed a positive growth. Among them, beverages, tobacco and related products grew at the highest pace at 31.1% followed by transport equipment and parts, which grew at 12.3 %. Basic chemicals and chemical products (except petroleum and coal products) grew by 9.5%. However, food products, jute and other vegetable fibre textiles (except cotton), wood and wood products, rubber, plastic, petroleum and coal products and other manufacturing industries showed a negative growth.
The downturn in wood and wood products could be largely on account of some slowdown in the realty sector, while high crude prices could have had impact on the production in chemicals sector. According to industry estimates, production of cement also decelerated to 3.8% during May 2008, compared to 9.9% during the corresponding month of the previous year. ACC and Ambuja, which reported lower despatches in May, blamed subdued demand for the low growth in output.
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