Industries adversely affected by a sharp fall in exports.
India’s industrial output dipped by 2.3 per cent in March this year as the country’s industries were adversely impacted by a sharp fall in exports and cut in spending by local consumers.
High base effect was cited as another reason for this record monthly decline in the Index of Industrial Production (IIP) since 1993, when the current series was introduced.
Economists say the latest number was expected as India’s exports contracted by nearly a third in March this year. But there is no consensus on when the industrial recovery will start.
Data released by the Central Statistical Organisation (CSO) today showed that the IIP grew by a mere 2.4 per cent in the April-March period as against an 8.5 per cent growth in the year-ago period.
“Export oriented items have been hit badly due to demand slump in the key Western markets,” said D K Joshi, economist with Crisil Ltd, a rating and advisory firm. “The latest IIP number shows that the effect of stimulus packages is yet to kick in,” he added.
Manufacturing, which has nearly 80 per cent weight in the index, contracted by 3.3 per cent in March 2009 mainly because of fall in output in the food products, leather and textiles sectors.
However, a few sectors like beverages, chemicals and transport equipment showed positive growth.
| IIP GROWTH IN MARCH 2009 | ||||
| Sector | March 2008 (% growth) | March 2009 (% growth) | Overall April-March 2007-08 (% growth) | Overall April-March 2008-09 (% growth) |
| Mining | 4.9 | 0.4 | 5.1 | 2.3 |
| Manufacturing | 5.7 | -3.3 | 9.0 | 2.3 |
| Electricity | 3.7 | 6.3 | 6.4 | 2.8 |
| Overall | 5.5 | -2.3 | 8.5 | 2.4 |
In terms of use-based classification, only two segments — consumer durables and basic goods — were in the positive territory. “Indians are reigning in spending. Falling asset prices, deteriorating labour market conditions and subdued fall in consumer prices are hurting spending by households,” said a note prepared by the Moody’s Economy. Capital goods dipped the most by 8.2 per cent, indicating slowdown in private investment, which has been the main driver of growth for the Indian economy. FMCG output also dipped 3.6 per cent.
Saying that the fall in IIP showed the economy was yet to get out of slowdown mode, Federation of Indian Chambers of Commerce and Industry (Ficci) president Harsh Pati Singhania said, “What is of concern is that some of the basic and core industries such as metal products, and basic metal and alloys, have shown deep deceleration. This reflects a serious demand slowdown, sluggishness in investment activity and a continuous fall in exports.”
|
Month |
IIP |
| April 2008 | 6.22 |
| May 2008 | 4.37 |
| June 2008 | 5.44 |
| July 2008 | 6.39 |
| August 2008 | 1.69 |
| September 2008 | 6.03 |
| October 2008 | 0.11 |
| November 2008 | 2.53 |
| December 2008 | -0.25 |
| January 2009 | 0.39 |
| February 2009 | -0.72 |
| March 2009 | -2.3 |
| Source: CSO | |
“Looking forward, we expect an uptick in the April industrial production. The Purchasing Manager’s Index for April has shown its first expansion after contracting for five successive months. Motor vehicle sales have also picked up in the last three months, while railway freight has also shown some increase. The excess liquidity in the system, a substantial easing of financial conditions and a decline in some key interest rate spreads suggest to us that activity will pick up in second half of fiscal 2010,” said Pranjul Bhandari and Tushar Poddar, economists with Goldman Sachs.
However, Joshi of Crisil said decisive upturn in industrial output would not happen unless the global economy recovered, which he expected to be not before October 2009.
