Thursday, May 14, 2009

Shrinking India's Industrial Production Growth

Weak health of the Indian industry is showing once again and has resulted in industrial production declining to nearly half to 2.3 per cent in March 2009, as compared to 5.5 per cent during the corresponding month in 2008.

The growth target of 6.5 per cent looks dismal given that major sectors like steel, cement showing a degrowth, add to this construction numbers in the core sector are also not looking robust.

Manufacturing Sector Affected
The official data released on May 12, 2009 reveal that with the manufacturing sector accounting for 80 per cent of the Index of Industrial Production (IIP), industrial growth for the whole of 2008-09 plunged to 2.4 per cent from a high of 8.5 per cent in 2007-08 owing to a shrinkage in demand for manufactured goods as a direct impact of the unprecedented global turmoil during the major part of the fiscal year.

Manufacturing industry, which comprises 80 per cent of the index, has been badly hit and has dipped to -3.3 per cent in March 2009 as against 2008. The only sector that has seen activity and has kept the index going is consumption of consumer durables like washing machine, television and refrigerators recorded a growth of 8.3 per cent but consumer non-durables like soap, hair oil have registered a -3.6 per cent in March 2009 over corresponding month in 2008.

As regards fiscal year 2008-09, manufacturing sector growth decelerated to 2.3 per cent from 9 per cent in the previous fiscal.

Mining and Electricity Sectors
The mining sector grasped to keep above ground and grew by 0.4 per cent during March 2009 as compared to an increase of 4.9 per cent in March 2008.

Only power generation has risen by 6.3 per cent during the month, compared to 3.7 per cent during the corresponding period in 2008.

However, the capital goods are mainly machinery and equipment that are installed by manufacturing units for expansion of production capacities, the dismal performance of the segment during March 2009 is likely to impact overall industrial growth in the coming months also.

Industries manufacturing beverages, tobacco and related products have shown the highest growth of 15.1 per cent, followed by 8.3 per cent growth in basic chemicals and chemical products (except products of petroleum and coal), transport equipment and parts and related industry has grown by 7 per cent.

Bleak Prospects Ahead
Keeping the above scenario in mind, it can be asid that the industrial production will continue to contract at least for another 2-3 months though signs of recovery have started discreetly surfacing but their results will be visible by June.

It is believed that a distinct break cannot come about without a spurt in investments and a radical improvement in the investment environment. Lending rates continue to remain fairly high and act as a disincentive for fresh investments and fructification of planned projects.

No comments: