Industry shrinks 2.3% in March
Times of India, May 13, 2009, Page 21
NEW DELHI: The index of industrial production (IIP) declined by 2.3% in March compared to the same month last year. According to a Morgan Stanley report, this is the steepest fall in the index since February 1993.
The slowdown in the second half of 2008-09 saw the IIP grow by just 2.4% in 2008-09, against 8.5% in 2007-08. However, bankers and economists feel that a revival in industrial production is imminent.
Crisil chief economist DK Joshi said the IIP would turn positive in April because of the revival in sentiment and increase in expenditure at the ground level due to election campaign. Investment banker Goldman Sachs also projected positive growth in April. In a report, Goldman Sachs said the purchasing managers' 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 also shown some increase.
Goldman Sachs said the excess liquidity in the system, a substantial easing of financial conditions and declines in some key interest rate spreads suggest that activity will pick up in the second half of 2009-10. The bank expected GDP to grow at 5.8% in 2009-10, lower than the expected 6.4% in 2008-09.
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 the steep contraction in the output of capital goods by 8.2%. DK Joshi said that this clearly suggested that industry is not investing in the plant and machinery, which will impact the future growth. During the year as whole, the output of capital goods decelerated to 7 per cent from 18 per cent a year ago. Therefore, he said, the recovery will be slow.
Commenting on the dismal growth figures, the Chairman of the Prime Minister's Economic Advisory Council (PMEAC), Suresh Tendulkar, 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 are reviving.
Joshi said that contraction in March is mainly due to external sector. As the export is down by 33%, the manufacturing sector is bound to under-perform, he pointed out. At the same time, he said that the impact of stimulus package has yet to be realized in the infrastructure sector.
The infrastructure index rose by 2.9% in March compared to 1.3% in February. This clearly suggests that impact of stimulus package has started percolating at the ground level. But, it will take some time to realize its full impact.
As regards 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 poorly with the growth rate slipping to 0.4% during March compared to 4.9% in the same month a year ago. For 2008-09, growth in the mining sector declined to less than half to 2.3% compared to 5.1% in the previous fiscal.
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 during the year as a whole decelerated to 2.8% from 6.4% in 2007-08.
Interestingly, the IIP figures are prone to revision in subsequent months. The January figure is revised upward to positive 0.4% as against earlier projection of negative growth of 0.5%. The December figure also revised upward from a contraction of whopping 2% to a mere 0.25%. For February figure also, the estimate has 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.
Times of India, May 13, 2009, Page 21
NEW DELHI: The index of industrial production (IIP) declined by 2.3% in March compared to the same month last year. According to a Morgan Stanley report, this is the steepest fall in the index since February 1993.
The slowdown in the second half of 2008-09 saw the IIP grow by just 2.4% in 2008-09, against 8.5% in 2007-08. However, bankers and economists feel that a revival in industrial production is imminent.
Crisil chief economist DK Joshi said the IIP would turn positive in April because of the revival in sentiment and increase in expenditure at the ground level due to election campaign. Investment banker Goldman Sachs also projected positive growth in April. In a report, Goldman Sachs said the purchasing managers' 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 also shown some increase.
Goldman Sachs said the excess liquidity in the system, a substantial easing of financial conditions and declines in some key interest rate spreads suggest that activity will pick up in the second half of 2009-10. The bank expected GDP to grow at 5.8% in 2009-10, lower than the expected 6.4% in 2008-09.
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 the steep contraction in the output of capital goods by 8.2%. DK Joshi said that this clearly suggested that industry is not investing in the plant and machinery, which will impact the future growth. During the year as whole, the output of capital goods decelerated to 7 per cent from 18 per cent a year ago. Therefore, he said, the recovery will be slow.
Commenting on the dismal growth figures, the Chairman of the Prime Minister's Economic Advisory Council (PMEAC), Suresh Tendulkar, 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 are reviving.
Joshi said that contraction in March is mainly due to external sector. As the export is down by 33%, the manufacturing sector is bound to under-perform, he pointed out. At the same time, he said that the impact of stimulus package has yet to be realized in the infrastructure sector.
The infrastructure index rose by 2.9% in March compared to 1.3% in February. This clearly suggests that impact of stimulus package has started percolating at the ground level. But, it will take some time to realize its full impact.
As regards 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 poorly with the growth rate slipping to 0.4% during March compared to 4.9% in the same month a year ago. For 2008-09, growth in the mining sector declined to less than half to 2.3% compared to 5.1% in the previous fiscal.
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 during the year as a whole decelerated to 2.8% from 6.4% in 2007-08.
Interestingly, the IIP figures are prone to revision in subsequent months. The January figure is revised upward to positive 0.4% as against earlier projection of negative growth of 0.5%. The December figure also revised upward from a contraction of whopping 2% to a mere 0.25%. For February figure also, the estimate has 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.
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