11.4.09

Economy Snapshot




The government's stimulus measures are yet to show any positive impact. Industrial output declined by 1.2% in February 2009 compared to a growth of 9.5% a year ago. For April-February 2008-09, industrial production grew 2.8% as against 8.8% in the same period last year. At the same time, for week ending March 28, inflation fell to 0.26% from 0.31% in the previous week. The main reason behind the near-zero inflation is decline in the prices of industrial products because of lack of demand. Industrial growth in February has mainly been pulled down by manufacturing sector, which registered a negative 1.4% growth and mining (-1.6%). However, the silver lining of the February data is the production of capital goods rose 10.4%, compared to a 8.9% rise in April-January, suggesting that investment outlook is improving. And, economists feel that with the major categories like manufacturing and mining and sub-categories like consumer non-durables, basic goods and intermediate items registering negative growth in February, RBI should infuse liquidity in the system to enable banks to bring down interest rates. Goldman Sachs in a report, however, pointed out that a close look suggests that the February figure is not very disappointing as the monthly momentum after adjusting the seasonal factors rose 0.6% from January, which is highest since October 2008. Government's measure like across-the-board 4% excise cut and lowering of interest rates by two percentage points have not yielded any result. IIP had shown negative growth for the first time in 15 years in October 2008. According to provisional figures, it is the third month in a row that industrial growth has turned negative. However, negative industrial growth at 0.5% estimated provisionally for January was revised upwards to a positive 0.4%. Also, for October, provisional estimate of -0.4% was revised upwards to 0.1%. Economic affairs secretary Ashok Chawla said the slowdown in the industrial production is mainly due to decline in exports because of recession in the developed economies. He said sectors, which have very high export linkages like cotton textile, leather, mining, are suffering badly because of global recession. "The internal demand continues to be robust particularly in the rural sector,'' he said, adding, "so the present figure is not very disappointing." "We have never said that the manufacturing sector is back to robust growth. What we are saying is sectors like cement, steel, passenger vehicles, automobiles, which have a major interface with the rural domestic demand are turning around,'' Chawla said. "Exportlinked sectors will continue to slide. The trend is likely to continue for at least three to four months," Crisil principal economist D K Joshi added. Foreign direct investment to India dipped to $1.49 billion in February from $5.67 billion a year ago amid the global credit crunch, but inflows in the 11-month period (April-February 2008-09) of the fiscal have already crossed the inflows in the entire preceding fiscal. Despite over 73% year-on-year drop in inflows in February, the FDI for the 11-month period of 2008-09 has aggregated to $25.38 billion against $24.57 billion in the previous fiscal 2007-08, an official said. Though the country would not achieve even the truncated FDI target of $30 billion in 2008-09, it has already seen an inflow expansion in the midst of difficult global environment.

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