IIP records dip

The global slowdown has taken a toll on India’s industrial production. The index of industrial production (IIP) for March declined by 2.3% from same month in 2008, which, according to a Morgan Stanley report, is the steepest fall in the last 16 years since February 1993. And, IIP for 2008-09 grew by only 2.4% as against 8.5% in the 2007-08. However, bankers and economists feel that a revival of industrial production is round the corner. D K Joshi, chief economist at Crisil, said IIP figure would turn positive in April because of revival in sentiments and increase in expenditure at the ground level due to election campaign. Projecting a positive growth in April, Goldman Sachs said in a report that 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 and railway freight has been increasing. Goldman Sachs said excess liquidity in the system, easing of financial conditions and declines in some key interest rate spreads suggest that industrial activity will pick up in the second half of 2009-10. The investment bank expects GDP to grow at 5.8% in 2009-10. The contraction in March has been mainly on account of a 3.3% fall in the manufacturing sector’s output, which accounts for nearly 80% in the IIP. However, the main worry is a steep 8.2% decline in the output of capital goods. Joshi said this showed that industry was not investing in plant and machinery, which would impact the future growth. The recovery will be slow, he said, as in 2008-09, capital goods output dipped to 7% from 18% in the previous financial year. Commenting on the dismal growth figures, Suresh Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said, “Recovery is bound to be slow... but it is picking. International financial markets are stabilising and are also picking up.’’ He said that steel, cement and other sectors were showing revival signs. Joshi added that contraction in March was mainly due to the external sector. As export was down by 33%, the manufacturing sector was bound to underperform, he pointed out. The infrastructure index rose by 2.9% in March compared to 1.3% in February. This suggests that impact of stimulus packages has been trickling down to the ground level. But, it will take some time to realise its full impact. Regarding the need for another stimulus package to boost industrial output, Tendulkar said the new government, which will assume power after the general elections, will have to make an assessment. Apart from manufacturing, mining performed also poorly with the growth rate slipping to 0.4% in March compared to 4.9% in the same month a year ago. In 2008-09, the growth declined to 2.3% compared to 5.1% in the previous financial year. Although electricity generation recorded a growth rate of 6.3% in March, up from 3.7% in the corresponding period a year ago, the output in 2008-09 dipped to 2.8% from 6.4% in 2007-08. Interestingly, the IIP figures get revised in subsequent months. January figure was revised upward to positive 0.4% from a negative 0.5%. December figure also revised upward from a contraction of 2% to a positive 0.25%. February figure has also been revised from negative 1.23% to negative 0.72%. Goldman Sachs in the report said that the March figure will also likely to be revised upward.