Consumer durables output dips 3.2% in July

In stark contrast to the increasing sales of consumer durables in 2007, production has continued to decline in India. The reasons range from inventory pile-ups to increasing imports.

The Index of Industrial Production (IIP) data released by the government today suggested that consumer durables production registered a decline of 3.2 per cent in July 2007 against a growth of 16.1 per cent in July 2006.

Industry experts attributed the drop to rising imports from free trade zones like Thailand and a lull in demand during the Cricket World Cup which led to stock pile-ups.

The Confederation of Indian Industry (CII) hinted that higher interest rates had led to a slowdown in consumer spend on durables.

CII said in a statement that the negative growth in consumer durables could be partly attributed to the continuation of monetary tightening measures announced in the annual monetary policy statement.

Some analysts gave other reasons. "Companies might try to clear inventories before the festive season. This could lead to a slump in production for a while. However, it is likely that production will pick up in the short term. But the trend not to offer discounts could slow things," said a Mumbai-based analyst.

Companies were confident, however, that the IIP statistics did not signal a downturn.

"There is no cause for alarm. Our plans for the forthcoming festive season will remain as they were," said Ravinder Zutshi, deputy managing director, Samsung India Electronics, the second largest player in India.

"With increasing consumption and demand, we don't think growth is an issue any more. One reason why the government data does not capture this growth is that it does not cover all producers in the industry." Market leader LG Electronics said that it has not cut production.

"The reason that manufacturing numbers have come down could be due to an increase in imports," said Sanjay Arora, vice president, manufacturing and customer service, LG Electronics India.

He suggested that the decline would be mainly in premium category products. Both Samsung and LG have set up new plants in Chennai and Pune respectively.

According to industry estimates, the Rs 25,000 crore durables market is growing at 10-12 per cent.