2% December output fall lowest in 15 years
The Economic Times, February 13, 2009, Page 7
IIP CRASH & SLIDING INFLATION SET STAGE FOR INTEREST RATE CUTS
Our Bureau NEW DELHI
INDUSTRIAL production fell 2% in December 2008 — the highest year-onyear contraction in any month in 15 years — amid signs that the slowdown was spreading to more sectors.
The expectation is that January 2009 would be a better month. However, there are indications that the worse-than-expected December number is likely to invite a slew of measures including aggressive interest rate cuts and further fiscal boost.
The external affairs minister Pranab Mukherjee, who is also holding the finance portfolio, said in Capital on Friday, “There is a need to sustain foreign trade, revive investments and generate domestic demand in order to maintain growth rates.”
The 2% drop in industrial production, as measured by the index of industrial production (IIP), was largely due to a sharp 2.5% year-on-year contraction in manufacturing, which has the largest weight, 80%, in IIP. Only 7 of the 17 manufacturing sectors showed a positive growth against 10 last month, confirming fears that the slowdown was spreading. Machinery and equipment, other than transport, which has the second-highest weight in the manufacturing index, has logged negative 4.1% growth in December against a growth of 7.9% during April-November 2008.
However, despite the unexpected contraction in industrial output, many economists did not see this as exerting a downward pressure on the CSO’s advance forecast of GDP growth, which stands at 7.1% for the year to end-March 2009. The advance estimates of GDP peg manufacturing growth at 4.1% while cumulative growth till December remained at 3.2%. The optimism is perhaps rooted in the turnaround in the capital goods segment which logged a 4.2% growth in December against a negative 0.1% in November 2008.
Chief statistician Pronab Sen told ETthat GDP growth for the financial year is unlikely to be bleak, adding that the recently-announced fiscal package that seeks to boost spending and cut levies on goods would help consumption and limit the downside risks to economic growth.
The consumer goods segment contracted 2.7% following a 12.8% drop in production of consumer durables and a 0.1% drop in production of consumer non-durables. This is a worrying indicator as the reasonable 6.4% growth in the production of consumer non-durables during April-November 2008 was seen as an indicator that the consumption had not suffered much, particularly in the rural areas.
However, the poor performance of consumer non-durables is at variance with the quarterly results of the FMCG companies, reaffirming the allegation that IIP was faulty and it did not capture true growth because of an outdated product basket. The Q3 results of FMCG companies revealed a strong topline growth across companies even though volumes growth was muted. The big FMCG companies delivered a cumulative sales growth of about 14% and an operating profit growth of over 11% during the quarter.
Mr Sen did agree that IIP data had shortcomings. He said, “For preparing the provisional figures for IIP numbers, we get data from around 50% of the companies which are supposed to give data. The provisional figures are highly influenced by the numbers we get. The data sourcing is done from companies, which have been here in 1993-94, and data from some of the companies which are witnessing fast growth is not captured by IIP.”
The drop in production of consumer durables is likely to be interpreted as a clampdown on discretionary expenditure. Prime Minister’s Economic Advisory Council (EAC) member Saumitra Chaudhari, however, dismissed the 12.8% fall as an aberration.
He said, “EAC is of the view that industrial activity will show a recovery in the final quarter, pushing up the cumulative growth for the year. Keeping in mind the dislocation caused to the sale and manufacturing of a wide array of projects after September 2008, we assess that manufacturing activity will grow by an average of 2.5% in the second half of 2008-09, yielding an annual average of 4% growth for full year. This has an upside built into it if the improvement is somewhat stronger in the closing months of 2008-09.”
The Economic Times, February 13, 2009, Page 7
IIP CRASH & SLIDING INFLATION SET STAGE FOR INTEREST RATE CUTS
Our Bureau NEW DELHI
INDUSTRIAL production fell 2% in December 2008 — the highest year-onyear contraction in any month in 15 years — amid signs that the slowdown was spreading to more sectors.
The expectation is that January 2009 would be a better month. However, there are indications that the worse-than-expected December number is likely to invite a slew of measures including aggressive interest rate cuts and further fiscal boost.
The external affairs minister Pranab Mukherjee, who is also holding the finance portfolio, said in Capital on Friday, “There is a need to sustain foreign trade, revive investments and generate domestic demand in order to maintain growth rates.”
The 2% drop in industrial production, as measured by the index of industrial production (IIP), was largely due to a sharp 2.5% year-on-year contraction in manufacturing, which has the largest weight, 80%, in IIP. Only 7 of the 17 manufacturing sectors showed a positive growth against 10 last month, confirming fears that the slowdown was spreading. Machinery and equipment, other than transport, which has the second-highest weight in the manufacturing index, has logged negative 4.1% growth in December against a growth of 7.9% during April-November 2008.
However, despite the unexpected contraction in industrial output, many economists did not see this as exerting a downward pressure on the CSO’s advance forecast of GDP growth, which stands at 7.1% for the year to end-March 2009. The advance estimates of GDP peg manufacturing growth at 4.1% while cumulative growth till December remained at 3.2%. The optimism is perhaps rooted in the turnaround in the capital goods segment which logged a 4.2% growth in December against a negative 0.1% in November 2008.
Chief statistician Pronab Sen told ETthat GDP growth for the financial year is unlikely to be bleak, adding that the recently-announced fiscal package that seeks to boost spending and cut levies on goods would help consumption and limit the downside risks to economic growth.
The consumer goods segment contracted 2.7% following a 12.8% drop in production of consumer durables and a 0.1% drop in production of consumer non-durables. This is a worrying indicator as the reasonable 6.4% growth in the production of consumer non-durables during April-November 2008 was seen as an indicator that the consumption had not suffered much, particularly in the rural areas.
However, the poor performance of consumer non-durables is at variance with the quarterly results of the FMCG companies, reaffirming the allegation that IIP was faulty and it did not capture true growth because of an outdated product basket. The Q3 results of FMCG companies revealed a strong topline growth across companies even though volumes growth was muted. The big FMCG companies delivered a cumulative sales growth of about 14% and an operating profit growth of over 11% during the quarter.
Mr Sen did agree that IIP data had shortcomings. He said, “For preparing the provisional figures for IIP numbers, we get data from around 50% of the companies which are supposed to give data. The provisional figures are highly influenced by the numbers we get. The data sourcing is done from companies, which have been here in 1993-94, and data from some of the companies which are witnessing fast growth is not captured by IIP.”
The drop in production of consumer durables is likely to be interpreted as a clampdown on discretionary expenditure. Prime Minister’s Economic Advisory Council (EAC) member Saumitra Chaudhari, however, dismissed the 12.8% fall as an aberration.
He said, “EAC is of the view that industrial activity will show a recovery in the final quarter, pushing up the cumulative growth for the year. Keeping in mind the dislocation caused to the sale and manufacturing of a wide array of projects after September 2008, we assess that manufacturing activity will grow by an average of 2.5% in the second half of 2008-09, yielding an annual average of 4% growth for full year. This has an upside built into it if the improvement is somewhat stronger in the closing months of 2008-09.”
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