Industrial production unexpectedly fell in February as poor consumer demand meant that the manufacturing sector remained weak and underlined the need for the new government to undertake immediate measures to revive the economy. Factory output contracted 1.9% in February, the worst performance since the 2.5% fall seen last May.
The poor show was entirely on account of a 3.7% decline in manufacturing activity as consumer shunned purchasing white goods and even non-durables, resulting in a fall in production in both sectors. Poor consumer demand has left companies with surplus capacity at their plants, which in turn has meant that they are not purchasing machinery. As a result, the capital goods sector saw a 17.4% decline in February.
Data released by the ministry of statistics showed that radio, TV and communication equipment production declined nearly 27%, while office, accounting and computing machinery, furniture (14% each) were the other poor performers. The auto sector has also contributed to the continued contraction in the manufacturing sector as buyers deferred purchases.
Economists reckon that 2013-14 could be the worst year for the manufacturing sector since 1991-92 when economic reforms were ushered in. A weak industrial sector is one of the main reasons behind the economic slowdown with several companies now in distress. As a result they are now delaying loan repayments and laying off workers to stay afloat.
A continued run of poor numbers even during the fourth quarter is expected to keep the overall growth rate in the sub-5% region. “Such a steep fall in manufacturing disproves that growth has bottomed out. Both consumer demand and investment conditions seem to be weakening thereby further dampening the outlook for manufacturing,” said Ficci director general Arbind Prasad.
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