The slow-down in industrial growth will be bottomed out only by the end of the current financial year and in the first quarter of 1998-99, the industry will grow between 10.5 and 11.5 per cent, the business confidence survey by the Federation of Indian Chambers of Commerce and Industry (Ficci) has said.
The survey, covering over 175 large, medium and small corporate houses indicated that the present slow down is temporary.
This trend would be reversed due to the combined effect of the 1997-98 budget, the new credit policy, relaxation in the external commercial borrowings (ECBs) and a host of other steps which are being taken by the government.
The study is based on assumptions such as the rate of borrowing falling to 17 to 18 per cent, inflation hovering around six to seven per cent and money supply (M3) being about 15 to 16 per cent.
The methodology adopted for the study was to analyse the feedback from the respondents about the rate of growth of their specific industry and extrapolating the growth figures to arrive at the figures for the third quarter of 1997-98 and for fiscal 1998-99, a Ficci release said here yesterday.
Over 80 per cent of the respondents to the survey based their rationale for the bottoming out of the slow-down to the lag effect for the policy framework to show results. The lag effect could vary from 8 months to 12 months, they said. This would mean that the favourable spin-off of these policy instruments would start showing only by the third quarter of this fiscal and by the beginning of the next.
A strong surge in the industrial growth in the second, third and subsequent quarters of the next fiscal in possible, the survey says.
As many as 14 items having a weight of 21.42 in the index of industrial production (IIP) are likely to lead this uptrend in industrial activities which include saleable steel, cement, fertilisers, pig iron, sugar, cloth, yarn, commercial vehicles, cars, jeeps, motor cycles, auto rickshaw and scooter/mopeds.
The survey said that saleable steel, which has a weight of 5.21 and is growing at 2.3 per cent during April-February 1996-97, will register a growth of about six per cent by the last quarter of this fiscal and in 1998-99 the growth would be between 7.5 to 8 per cent. The rationale for this growth is due to the pick up in construction activities. Appropriate counter-veiling mechanisms have to be evolved to protect the domestic steel industry.
Close on the heels of the steel sector is the cement industry which has a weight of 1.6 and is growing at the rate of 9.2 per cent during April-February 1996-97. Around the last quarter of the fiscal, cement production is expected to go up by 11 per cent or so which might get stabilised more or less at the same rate throughout the next fiscal or could fall due to environmental restrictions.
The expected boom in construction activities would bring about buoyancy in this sector also. The major bottlenecks being faced by the cement industry, such as, power shortage, movement dislocation, availability of coal and other raw materials should be looked into, the survey says.
The automotive sector, which includes commercial vehicles, cars, jeeps, motor cycles and auto-rickshaw, and has a weight of 2.2, the growth rate has declined considerably in recent years.
Yet, the growth rate ranges from 10.3 to 30.6 during April-February 1996-97 for various types of vehicles. In the financial year 1998-99, the growth rate will be more or less in the same pattern. However, in some sectors like scooter and mopeds and auto-rickshaw, a slight decline in the growth rate is expected in the financial year 1998-99.
On capital goods which has a weight of 16.4 in IIP (use-based) and is growing at 11.8 per cent during April-December 1996-97, the slowing down process will be reversed only by the beginning of the next fiscal, it says. This sector, which of-late is showing a downward trend, triggered factors including import competition and low demand pick up due to slowing down of investment, will get a boost by relaxations of the ECB and inter-corporate loans, and credit availability and hybrid options incorporated in the companies bill. The recent government decisions like extending swap arrangements and greater flexibility will give a critical push to this sector.
However, there will be counter-veiling forces, which might pull the domestic demand factor, such as reduction in the import duty, relaxation in the Export Promotion Capital Goods (EPCG) scheme, reduction in the import duty of spare parts, components etc.
Gauging by these pulls and counter-pulls, Ficci feels that the growth rate in the first quarter of the next fiscal would be between 8 to 9 per cent which will pick up in the course of the financial year as more investible resources are being placed at the disposal of the corporates.
The consumer goods sector which carries a weight of 23.6, a growth rate of 6.2 per cent during April-December 1996-97 is likely to rise to between 9 and 10 per cent by the last quarter of the fiscal and might even get into higher trajectory of growth, say 12 to 13 per cent by the first quarter of 1998-99.
In the event of agricultural production looking up and the purchasing power of the rural masses consequently going up, there is a possibility of the demand for cloth both in the mill and decentralised sectors going up further.
In case of cloth (decentralised), which carries a weight of 3.24 and is growing at 13.3 per cent during April-February 1996-97, the expected growth by the last quarter of the fiscal would be about 15 per cent.
If the export outlets are tapped, this sector can grow at 18 to 19 per cent, perhaps the highest-ever rate of growth achieved by this sector in recent years.
However, the cloth (mill) sector, with a weight of 2.98 for which the growth rate is decelerated to (-) 1.8 in April-February 1996-97, the negative trend will be bottomed out by the third quarter and in the last quarter of current financial year, the growth would be between 5 to 6 per cent.
Throughout fiscal 1998-99, the growth would be between 8 to 9 per cent. A determinant of demand for this case as also the other consumer goods is the agricultural production.
Yarn, which has a weight of 5.78 per cent and has grown at 5.3 per cent during 1996-97 (April-Febraury), would show a growth of 8 to 9 per cent by the last quarter of this fiscal and would be growing between 10 and 11 per cent in the next, the survey said.
