Sluggish manufacturing keeps IIP in single digits.
Signs of an economic slowdown strengthened today with industrial output and core sector data for June released by the government showing indifferent growth, thanks to a lacklustre performance by the manufacturing sector.
Industrial output rose 5.4 per cent in June, down sharply from 8.9 per cent in the same month last year. The latest rise is, however, in line with the expectations and above the upwardly-revised 4.1 per cent growth in May this year, data released by the Central Statistical Organisation showed.
The overall downturn in industrial activity was on account of low growth of 5.9 per cent in manufacturing, compared to 9.7 per cent last June. This sector accounts for 80 per cent of the Index of Industrial Production (IIP).
| SLOW TRACK | ||||
| IIP growth | ||||
| Sector | June 07 | June 08 | Overall Apr-June 07-08 | Overall Apr-June 08-09 |
| Mining | 1.5 | 2.9 | 2.7 | 4.7 |
| Manufacturing | 9.7 | 5.9 | 11.1 | 5.6 |
| Electricity | 6.8 | 2.6 | 8.3 | 2.0 |
| Overall | 8.9 | 5.4 | 10.3 | 5.2 |
| Source: Central Statistical Organisation | ||||
| Index of six core sector industries | |||
| Sector | Weight (%) in IIP | June 07 | June 08 |
| Crude Petroleum | 4.17 | -1.8 | -4.7 |
| Refinery Products | 2.00 | 9.9 | 5.6 |
| Coal | 3.22 | 0.9 | 6.2 |
| Electricity | 10.17 | 6.8 | 2.6 |
| Cement | 1.99 | 6.0 | 3.8 |
| Finished Steel (carbon) | 5.13 | 5.1 | 4.4 |
| Overall | 26.70 | 5.2 | 3.4 |
| All figures denote % growth Source: Commerce and Industry Ministry | |||
Capital goods growth remained weak at 5.6 per cent, a huge fall from 23.1 per cent in the same month last year. Citigroup Global Markets analysts Rohini Malkani and Anushka Shah said this could be possibly due to the high base-effect as well as restrictive overseas borrowing norms in place since last year.
The sector that helped push the IIP growth higher than the previous month was consumer goods, which rose 10 per cent this June, up from 3.6 per cent in the same month last year. This double-digit growth was possibly on account of fiscal incentives like excise duty cuts made by the government earlier this year.
The core sector data, which was released by the Commerce and Industry Ministry, registered single-digit growth for the fifteenth consecutive month. The numbers showed crude oil production growth in June slipped to one of its lowest levels as output from major oil fields like Bombay High fell.
Goldman Sachs’ Tushar Poddar and Pranjal Bhandari said the data suggest weaker industrial production has set in. “Coincident indicators like non-food credit growth, cellular subscriptions and commercial vehicle sales suggest a moderation in activity rather than a sharp slowdown, and we expect this trend to continue this financial year,” they said in a report. The duo expects GDP growth to moderate to 7.8 per cent in 2008-09, from 9 per cent last year.
“The twin announcements corroborate our impression of a continuing slowdown in industrial growth. The IIP growth rate is near the lower band of our forecasts of 5-7 per cent,” Axis Bank economists Saugata Bhattacharya and Rituparna Banerjee said in a report.
“In terms of individual industries, the highest growth segments were textiles, chemicals and transport equipment. The first two indicate that exports have become a significant driver for industrial growth. Whether this will sustain following the partial reversal in the rupee remains to be seen,” the Axis Bank report said.
With first quarter GDP numbers for 2008-09 set to be released this month-end, Axis Bank expects a slowdown in some service segments that are linked to industrial activity. “If industrial growth continues to be tepid for the next few months, we might need to revise our GDP forecast for 2008-09 below 7.5 per cent. This might not happen with the resurgence in the monsoon rains,” the report added.
