Indian factory output grows, but industry bodies are sceptical

Govt. differs, says economy on track

By R Chandrasekaran

CHENNAI: India’s index of industrial production (IIP) recorded a 2.5 percent growth in March, the greatest expansion in five months. For the fiscal year ended March 2013, IIP rose only 1 percent on top of a 2.9 percent uptick recorded in the previous fiscal year.

While the March IIP growth encouraged the government, the industry is not convinced as it came from a negative base and cannot be looked at as a sign of revival. Moreover, of the 22 groups in manufacturing sector, 12 have contracted, thus suggesting that the industry is still reeling under pressure. This is despite a 3.2 percent growth recorded in manufacturing, which accounts for three-fourths of the IIP.

The March IIP came on the back of a revised 0.5 percent growth in February and the capital goods output recording a 6.9 percent uptick with the first back-to-back monthly growth after mid-2011. While consumer non-durables advanced 6.5 percent, consumer durables contracted 4.5 percent. The data also came on the heels of sluggish car sales number for April.

While the figures have bolstered the government’s optimism of an economic revival, industry bodies differ. For instance, Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said that the March IIP uptick came on top of a negative base and cannot be looked as a revival in manufacturing. She added, “Overall slowdown in economic activity and consumer demand continues to constrain manufacturing growth. Also, the growth within manufacturing is highly concentrated amongst top five high growth sectors in 2012-13 thereby weakening the chances of any sustainable growth in near future in manufacturing.”

The FICCI president also pointed out that the manufacturing growth is hampered by shortage of power and restrained growth of core sectors of the economy. In fact, electricity growth has decelerated to just half of what it was in the previous year.

Similarly, Confederation of Indian Industry (CII) voiced concerned on the performance of the mining sector and believes that high interest rates continued to hit consumer durables as restrained demand situations continued to exists.

Another trade body, Associated Chambers of Commerce and Industry (ASSOCHAM) also felt that the industry is still reeling under pressure as significant groups among the manufacturing sectors recorded a fall.

While the industry has been clamoring for a more accommodative monetary policy from the Reserve Bank of India, the central bank Governor Dr. D. Subbarao indicated little room for further easing of monetary policy on May 3. The RBI governor also clarified later that he only indicated little space and that he never said no space thus suggesting that the central bank will not be averse to cut down interest rates if the situation warrants.

Meanwhile, India Ratings & Research sees thin IIP recovery in fiscal year 2014 weighed down by the continued contraction of capital goods output in fiscal year 2013. The rating company, however, said, “A speedy industrial recovery is possible only by resolving issues related to power (coal and gas) and policy issues related to land, and project and environment clearances.”

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