Of the 86 sectors surveyed by CII-ASCON, only 10.5% expected to see a rise in production by over 20% in H1.
A day ahead of the release of industrial growth figures for July, a CII-ASCON survey today painted a moderating growth story for the manufacturing sector, blaming it on the Reserve Bank of India’s (RBI’s) continuous raising of policy rates and a rise in input prices.
Of the 86 sectors surveyed, only 10.5 per cent were expected to see a rise in production by over 20 per cent (termed ‘excellent’ by the survey) during the first half of this financial year, against 35.7 per cent shown in April-September 2010.
Also, the survey by the Confederation of Indian Industry (CII) and its various associations (ASCON) revealed that respondents expect 25.6 per cent of sectors to report contraction in production for the first six months, against just 8.7 per cent in the finding of the survey for the corresponding period of 2010-11.
However, those recording 10-20 per cent growth rate in production (termed ‘high’ by the survey) rose to 25.6 per cent of sectors this time, from 16.7 per cent in the year-ago period. The percentage of sectors recording moderate growth is expected to remain more or less the same. It is slated to be 38.4 per cent for the first six months of this financial year, against 38.9 per cent in the corresponding period of 2010-11.
“The ASCON Survey is a forward-looking indicator and it shows deceleration in growth in a large number of industrial sectors in the first half of 2011-12,” said CII director-general, Chandrajit Banerjee.
The respondents blamed the increasing cost of credit and high prices of raw materials for the expected growth moderation, which is in line with a call by CII for pressing a pause button on RBI's monetary tightening spree. RBI has already raised policy rates 11 times since early 2010, to cool inflation.
Manufacturing, which has a weight of around 76 per cent in the Index of Industrial Production, grew by 7.5 per cent in the first three months of 2011-12 against 10.3 per cent in the corresponding period of 2010-11. This was on the back of the 10 per cent growth in June against 7.9 per cent in the same month last year, largely pushed up by the capital goods segments that rose by a whopping 37.7 per cent against 3.7 per cent in June, 2010. It should be noted that capital goods sector numbers are considered too volatile and, so, unreliable.
In the survey as well, the capital goods category shows a divergent trend, with many sectors showing moderate and negative growth as well. While 10 segments show excellent to moderate growth, only two segments expect negative growth or contraction in output.
The worst performing category is basic goods, in which cement, natural gas and aluminium are expected to show negative growth in the first half of 2010-11. Growth in construction fell to 1.2 per cent in the first quarter of this financial year against 7.7 per cent in the corresponding period of last year, in line with slowing GDP growth to 7.7 per cent against 8.8 per cent earlier.
However, construction was shown to be increasing at 10.5 per cent in 2011-12, which means the activity should pick up in the second quarter.
Segments showing over 20 per cent growth are three-wheelers, tyres of light commercial vehicles and two-wheelers, ball and roller bearings, power cables, tractors, and earth moving and construction equipment. Sectors recording high growth of 10-20 per cent are vehicles, energy meters, capacitors, alcoholic beverages and tyres.
Some of the sectors registering moderate growth of 0-10 per cent include caustic soda, fertiliser, refineries, steel, rubber conveyer belting, cycle tyres, vanaspati, nylon tyre yarn and edible oil.
Those expected to report negative growth include groundnut oil, motor starters, natural gas, circuit breakers, nylon and polyester filament yarn.
Besides high costs of borrowing and inputs, infrastructure bottlenecks, land acquisition issues and increasing oil prices, environmental and procedural delays were cited as reasons for the moderating growth.
“The government needs to speed up the reform agenda to get the manufacturing sector back on track. Unveiling the National Manufacturing Policy at the earliest would be a step in the right direction,” said Banerjee.
The survey is based on feedback collected from industry associations, industry divisions and interaction with representatives of the associations and various manufacturing-related companies, representing about 3,500 in all.
