Industrial growth slows down to 7.1% in July, 2007

The Quick Estimates of Index of Industrial Production (IIP) for the month of July 2007 have been released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation. The industry has grwon at 7.1% as compared to the level in the month of July 2006. This is the slowest IIP growth in the last eight months. A lower growth can be partly explained by a higher base effect. The cumulative growth for the period April-July 2007-08 stands at 9.6% over the corresponding period of the pervious year.

Alongwith the Quick Estimates of IIP for July 2007, the indices for June 2007 have undergone the first revision and those for April 2007 have undergone the second (final) revision in the light of the updated data received from the source agencies. Even, industrial growth figures for June ‘07 has been revised downwards to 9% this month as against the initial estimate of 9.8% growth.

The adverse effects of rising interest rates and tight monetary policy are evident. Higher rates affected sectors such as automobile and housing the most. As a result production of machinery and transport equipment and non-metallic products which has cement as a major item slowed down. Small sectors like jute and jute products, wood and wood products along with basic metals have recorded outstanding growth in the range of 16-22 %. Besides, power generation rose 7.% on top of a 8.9% growth in July 06.

In terms of industries, as many as thirteen (13) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of July 2007 as compared to the corresponding month of the previous year. The industry group ‘Wood and Wood Products; Furniture and Fixtures’ have shown the highest growth of 21.1%, followed by 17.5% in ‘Basic Metal and Alloy Industries’ and 16.1% in ‘Jute and other Vegetable Fibre Textiles (except cotton)’. On the other hand, the industry group ‘Metal Products and Parts, except Machinery and Equipment’ have shown a negative growth of 5.1% followed by 4.6% in ‘Paper & Paper Products and printing, Publishing & Allied Industries’ and 4.1% in ‘Food products’.

As per used-based classification, the impact of interest rate is visible in many sectors. Decceleration in capital goods production in the initial months of FY08 has put a pause button on the five-years rally. Moreover, there is a sharp moderation in intermediate goods to 4.7% as against a growth of 10.7% a year ago. Slowdown in investment activity coupled with a lower intake of raw material reflects a moderation in industrial activity so far this year. Whether the latest figures are just an aberration or a beginning of a southward trend remains to be seen.

Going forward demand will influence the trend. A 3.2% fall in production of consumer durables this month deepened the existing trend in consumption slowdown. Things could look up a little with the festival season demand. But, this could be short-term . Later on, liquidity position, outlook on inflation and Reserve Bank’s measures to deal with the evolving situation will set the tone of consumption demand for the rest of the year.

On investment demand front, the existing situation is not very encouraging . Higher domestic interest rates, steep rise in overseas rates on account of liquidity crunch arising out of sub-prime crisis and a cap on foreign loans may play a spoilsport.

Industrial production grows by 11% in the first quarter of current fiscal

The Index of Industrial Production (IIP) numbers for June 2007 indicate a persistence of the somewhat unbalanced pattern of growth that was evident in the numbers for the first two months of this fiscal year. The overall index grew by 9.8 per cent over the corresponding month of last year, somewhat slower than during April and May, both of which showed double-digit growth; but growth during the quarter clocked in at 11 per cent, which is still quite respectable.

As in April and May, it is the significant variation in growth across industries that is a primary feature of the numbers and raises questions about momentum and sustainability. In both April and May, by far the fastest growing industry was wood and wood products, not at all significant in the overall basket but contributing disproportionately to the growth during the quarter. June was a third spectacular month for this industry - it grew by over 103 per cent over June 2006 and by over 104 per cent during the quarter. One could imagine that all the real estate that has been developed in recent months, be it residential or commercial, needs to be decorated and furnished, leading to a surge in demand for the products of this industry, but, even then the numbers are staggering. The other industry which performed exceedingly well is food products. Though it moderated considerably during June, growing at only 1.3 per cent, it notched a growth rate of over 27 per cent during the quarter. This was on the back of 55 per cent growth during April. If it hadn't been for these two industries accelerating so sharply, overall growth would have been far less buoyant.

By contrast, several major industries were relatively sluggish during the quarter. Metal products, for example, declined by almost 8 per cent during June; as a result, this sub-sector grew by barely 1 per cent over the quarter. Transport equipment, which has not been having a particularly good time, grew by 0.8 per cent during June and less than 2 per cent during the quarter. Paper, chemicals and non-metallic minerals were some of the other relatively slow-growing segments during the quarter. The one major industry which has sustained its momentum and also points to enduring optimism about the medium term, is machinery and equipment, which grew at over 18 per cent during June and over 19 per cent during the quarter. However, as the economic advisory council to the Prime Minister has pointed out, rapid growth driven more by an investment boom can be halted more quickly than if led by a consumption boom. In that sense, it is the capital goods sub-sector that needs to be watched closely for any change of tempo.

Over the past three months, it seems quite clear that the broad-based momentum that had been visible over the last couple of years has now subsided. Certain industries are doing very well, presumably driven by micro-economic factors, while some important ones which are more closely associated with macro-economic cycles are showing distinct signs of flagging. The latter appears consistent with the overall impression that the first-quarter corporate results created; the first signs of a plateau after several quarters of escalation. None of this should be surprising. After several interest rate hikes and liquidity control measures as well as the sharp appreciation in the rupee, a slowdown of some magnitude was inevitable. The only question is one of degree.

Related Reports:-

• Quick estimates of index of industrial production for June, 2007 - domain-b.com - August 10, 2007
• IIP growth almost flat at 9.8% - The Economic Times - August 11, 2007
• India's June IIP Growth Slows Down On Tighter Monetary Policy - rttnews.com - August 10, 2007

Indian industrial growth up 13.60 percent in April, 2007

Buoyant manufacturing sector has pushed up industrial growth to 13.6 per cent in the first month of the current financial year against 9.9 per cent in April 2006. The industrial growth, as measured by the Index of Industrial Production (IIP), showed good performance despite the core sector that contributes to 26 per cent of the index showing a low growth of 7.4 per cent in April. While the manufacturing sector recorded a whopping 15.1 per cent growth in April as against 11 per cent in the same month in 2006. The mining sector, however, continued to perform poorly recording a low growth of 3.4 per cent, the same as in the corresponding period last year.

As per the use-based classification, consumer non-durables sector recorded very high growth rate of 21.9 per cent against 9.4 per cent in April 2006. However, consumer durable sector witnessed a deceleration of growth, which dipped to 5.3 per cent as against 7.4 per cent in the corresponding month last year. The IIP growth rate for the basic goods dipped to 8.9 per cent and for capital goods to 17.7 per cent from 9.3 per cent and 19.6 per cent respectively. The intermediate goods showed a good performance with a growth rate moving up to 12.6 per cent from 8.5 per cent in April 2006. Further, industrial output growth of March 2007 has been revised upwards at 14.5%.

Source : Expressindia.com

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Industrial Growth will remain robust in 2007-08

Allaying apprehensions of a slowdown in the face of inflationary expectations and high interest rates, the government has said industrial growth will remain robust in 2007-08 on the back of impressive performance by the capital goods sector. ‘‘High rate of 14.1% growth of manufacturing in March and 12.3% in the whole of 2006-07 is expected to be sustained in this year as well,’’ department of industrial policy and promotion secretary, Ajay Dua said.

He said major contribution to manufacturing sector has come from a sharp increase in production of capital goods and intermediates in contrast to consumer goods. The capital goods sector registered a 17.7% growth while production of intermediate goods was up 11.7% in 2006-07. ‘‘High rate of growth of capital goods indicates that new production capacity is being added driven by consumer demand. Both the consumer demand and investment in capacity will continue to grow,’’ Dua said. “Increasingly liberal attitude to FDI in manufacturing and infrastructure is being adopted by the government. We are reviewing the ceilings on FDI in various sectors every year and reducing the number of clearances required,” he added.

In 2006-07, FDI inflows have witnessed an increase of 284% to $15.7 billion from $5.5 billion.“This year, we are expecting FDI of $25 billion in equity and $5 billion of earnings reinvested by existing companies,” he said.

The Index of Industrial Production (IIP) compares the growth in the general level of industrial activity in the economy with reference to a comparable base year. In order to capture the structural changes in the industrial sector, the base year of the all-India IIP which was commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81 and 1993-94. The current series of all-India IIP (base 1993-94) was released in May 1998. It covers the Mining, Manufacturing and Electricity sectors with weights of 10.47%, 79.36% and 10.17% respectively.

The Quick Estimates of IIP are compiled on the basis of data furnished by the source agencies located in various Ministries/Departments/Subordinate Offices of the Government of India. The index is released within six weeks from the reference month and are subsequently revised in the next and the third month based upon the revised production data furnished by the source agencies. For wide accessibility by the users, the copies of Press Release on Quick Estimates of IIP released through the Press Information Bureau are also put on the website of the Ministry of Statistics & Implementation (http://www.nic.in/stat) on the day of release.

• An overview of revision of Base Year of All-India Index of Industrial Production (IIP)
• Comparison of weights by item group in the manufacuring sector
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