IIP numbers depressing – analysts; industry calls for action

The latest index of industrial production (IIP) numbers indicate continued stagnation in the economy, Crisil Research has said.

Numbers released today revealed that the the IIP grew at a slower pace of 0.6 per cent in August as compared to 2.8 per cent in the previous month.

“Excluding the exceptionally high growth of over 25 per cent in ‘wearing apparel’ and ‘electrical machinery and apparatus’, industrial production in fact fell by 1.1 per cent in August, compared to a year ago,” Crisil Research, a part of ratings agency Crisil, said.

With a decline in fixed investment and a decadal low growth of 1.6 per cent in private consumption in the first quarter of 2013-14, the production of 13 out of 22 manufacturing industries has fallen between April and August this year. The growth in the production of both core industries as well as others has fallen further during this period compared to the last fiscal year.

“The output of consumption-oriented industries is expected to pick-up in the second half of 2013-14 due to higher rural incomes, on the back of a good monsoon and consequent high agricultural production. However, a sustained turnaround of industrial output hinges on a resolution of issues plaguing the mining sector, addressing supply-side bottlenecks in infrastructure and the ability of the government to speed up clearances of projects,” the agency said.

Output of the eight core infrastructure industries grew by 3.7 per cent in August, primarily due to an increase in production of coal, electricity and refinery products. However, crude oil and natural gas production fell by 1.5 per cent and 16.0 per cent, respectively, compared to a year ago.

During April-August 2013, core industries have grown by 2.3 per cent, much lower than 6.3 per cent in the corresponding period of last year Under the use-base classification of the IIP, capital good production contracted by 2.0 per cent in August, after registering a growth of 15.6 per cent in the previous month.

“The intermediate and basic good sectors, continued to remain sluggish,” it pointed out.

Consumer goods output in August fell by 0.8 per cent compared to a year ago; primarily due to a continued fall in consumer durables output.

“While a normal monsoon and consequent pick-up in rural incomes could push up consumption growth, a sustained revival in consumption will be contingent on a sustained rise in household incomes and moderation in retail inflation,” the agency said.

Meanwhile, India’s largest industry lobby, the Confederation of Indian Industry (CII) urged the government to take immediate action to bring demand back into the economy.

“Easing monetary policy alone is not sufficient. This must be supplemented with government action to revive investment and stimulate demand,” it said.

“We must move fast to expedite project clearances, implement the national manufacturing policy, indicate timelines for implementation of industrial and freight corridors and provide a competitive market for the coal and mining sectors.”

The IIP numbers cast a shadow on the hopes of a sustained rebound of industrial activity being around the corner. And if we factor in the base effect, the performance of industry looks even more disconcerting, CII said.

“What is especially discouraging is the sharp decline in output of all sub-sectors-manufacturing and mining – which continue to be under stress owing to a spate of inhibiting factors such as high interest rates, flagging investments, policy bottlenecks and subdued demand conditions. A tight monetary policy announced by RBI to check the resurgence of inflation has further created conditions which depress demand. The negative growth of the capital goods sector and a sharp deceleration of consumer goods industry especially consumer durables also call for urgent remedial action,” it said.

It said it appreciated the need to fight inflation, but it was “important that the RBI takes cognizance of the condition that industry is in, and reduce interest rates to revive demand.”