This is the biggest monthly contraction since April 1993, when the new IIP series was introduced.
India’s industrial output posted a record contraction of 1.2 per cent in February 2009, against 9.5 per cent growth seen in the year-ago month, due to a combination of factors like weak domestic demand and fewer working days, as well as a high base in the same month of the previous year.
Economists expect the index to remain weak in the coming months, but recover from the lows seen at the moment. This is the sharpest monthly contraction in the index since April 1993, when the new IIP series was introduced.
Except for capital goods, all the remaining three categories — basic, intermediate and consumer goods — were in the negative territory.
“The pick-up in consumer durables and capital goods is a positive sign,” said Sonal Varma, economist, Nomura Securities. Capital goods and consumer durables, which is part of consumer goods, grew at 10.4 per cent and 5.4 per cent, respectively.
Economists expect the IIP will see weak growth in the months after March, as they see some indications of revival in sectors like auto, cement and steel.
“The domestic sector may provide some support to local manufacturers. For instance, the fiscal stimulus measures, some of which relate to infrastructure development, will inject much-needed support to the industrial sector. However, such assistance could at most minimise the damages done by the global downturn,” said Sherman Chan, Sydney-based economist with Moody’s Economy.com.
In the April to February period of 2008-09, IIP grew 2.8 per cent, against 8.8 per cent in the corresponding period of the previous year.
Of the three broad sectors covered by the IIP, only electricity posted a marginal growth compared with a year earlier (see table). A record 1.4 per cent production dip in manufacturing sector, which has nearly 80 per cent weight in the IIP, dragged the index down in the month under consideration.
Production of consumer durables like television sets and washing machines expanded 5.7 per cent in February 2009, against 3.1 per cent growth in the year ago month. But FMCG output dipped 5.5 per cent, possibly due to a combination of inventory build up, as well as high growth of 14.3 per cent seen in the same month of 2008.
Going forward, the capital goods segment is unlikely to sustain the current level of growth rate, as companies are postponing or abandoning their expansion plans. Within this sector, the machinery segment output grew 15.6 per cent.
| IIP NUMBERS | ||||
| Sector | Feb ‘08 (% growth) | Feb ‘09 (% growth) | Apr-Feb 07-08 (% growth) | Apr-Feb 08-09 (% growth) |
| Mining | 7.9 | -1.6 | 5.2 | 2.4 |
| Manufacturing | 96 | -1.4 | 9.3 | 2.8 |
| Electricity | 98 | 0.7 | 6.6 | 2.4 |
| Overall | 95 | -1.2 | 8.8 | 2.8 |
“I don’t see capital goods to sustain this growth. Private investment has to pick up to sustain this,” said D K Joshi, principal economist of credit rating agency CRISIL.
Private investment contributed to nearly 60 per cent of India’s growth rate in the financial year ended March 2008.
Contraction in exports for the sixth consecutive month is also cited as reason for contraction in industrial output.
“Contraction in exports is much stronger than the contraction in industrial production. Therefore, what one can conclude is that the deflation is more in terms of price, not volume,” said Sujan Hajra, chief economist, Rathi Securities.
“India’s industrial outlook will remain dire until there are signs of improvement in export prospects,” Chan added.
Iip for previous months revised upwards
The IIP for November 2008 and January 2009 have been revised upwards as government got updated data from the industry on production. But economists are not impressed.
“IIP data have been known to show volatility. The revisions are not very significant. Overall, the weakness in the economy continues,” added Joshi.
