Challenge is to revive manufacturing for growth to pick up: CARE

Weak domestic demand, higher raw material costs, interest rate hikes; supply side bottlenecks and low business sentiment have impaired the performance

March 14, 2014 8:11 IST | India Infoline News Service
After registering a negative growth for three successive months, Index of Industrial production (IIP) for the month of January’14 bounced back to a positive territory; albeit marginally at 0.1% (CARE Ratings was one of the few agencies to predict positive growth in February). However, this cannot be interpreted as any kind of change in prospects as there are few encouraging signs in the performance of various constituents of the index. The weak performance in Industrial output continues to prevail mainly due to the declining consumer demand on account of high inflation and absence of sufficient investment due to prevailing high interest rates.
Cumulative growth in Apr-Jan FY14 was nil as against positive growth of 1% in the corresponding period of the previous year. To reach of growth rate of - 0.2% for the full year as per the GDP estimates, growth has to average 1.1% in the next two months.
Mining registered contraction of -1.5% in April-Jan’14 (-1.8% last year), while manufacturing registered -0.4% (+0.8%) and electricity 5.7% (4.7%).
Highest growth rate were recorded in ‘wearing apparel’ (28.1%) followed by ‘Electrical machinery & apparatus’ (23.3%). In addition, positive growth rates were recorded for tobacco products (2.4%), textiles (4%), luggage (5.6%), coke (5.4%), chemical products (10%) and other transport equipment (5.9%).
Growth in textiles, chemicals and garments may be attributed to a better exports performance. On the other hand, a sharp decline was recorded in case of radio, TV and communication equipment (-26.2%) followed by furniture & manufacturing (-16.1%), and Office, accounting and computing machinery (-15.4%).
In terms of the Use- based classification, contraction is seen in the performance of consumer goods and capital goods, which contracted by 2.7% and 0.8% during the first 10 months of FY14. The decline in consumer goods is attributed to the decline in the growth of consumer durables which registered a cumulative negative growth of 12.5% while the consumer non-durables increased by 5.6% compared to the corresponding period last year at 2.1%.
Capital goods segment continued to record a negative growth of -0.8% against -9.4% over the previous fiscal on account of subdued investments.
Basic goods growth stood lower at 1.3% compared with 2.8% recorded in the same period for the last fiscal.
Intermediate goods output increased by 3.0% as against 1.8% in the previous fiscal. Mining sector registered a positive growth of 0.7% in Jan’14, as against -1.8% during the same period last fiscal.
The Eight Core Industries recorded a positive growth for the third straight month at 1.6% in January’14, which is much lower than the 8.3% growth recorded in the corresponding period last fiscal. Besides, the cumulative output growth of these eight core sectors, having a weight of 37.9% in the overall index, lowered to 2.4% (April- Jan’14), when compared with 6.9% (April-Jan’13).
The core industry growth during the month was offset by the continued contraction in coal (-0.7%), natural gas (-5.2%) and refinery products (-4.5%) output. The remaining five core industries recorded a positive growth. Of these five industries, steel production recorded a growth of 3.4% followed by crude oil (3%), cement (1.5%) and
fertilizers (1.2%). Electricity was the only sector which posted a healthy growth during the month at 5.7%.
However, the growth in electricity generated has been lower than that recorded in the previous fiscal (6.3%) clearly reflecting the impact of continuously falling coal production. The growth in industrial output continues to remain subdued with a growth rate of merely 0.1% for the month of January’14. Weak domestic demand, higher raw material costs on account of high inflation, interest rate hikes; supply side bottlenecks, low business sentiment and slow movement in implementation of reforms have impaired the performance resulting in weak industrial activity. It is quite evident, that the persistent volatility in the industrial output is likely to delay the expected revival in growth. Hence, achievement of the projected economic growth of 4.9% appears to be less optimistic. Hence, the biggest challenge is to revive manufacturing for overall growth to pick up. This should be taken up with urgency in FY15.

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