Industrial output growth hits 6-year low

If inflation hitting a three-year high was not enough, the Indian economy received another jolt with the industrial output falling to a six-year low in March. High interest rates, coupled with spiraling costs and a US-led global slowdown hit industrial activity during the last month of FY08. However, some economists pointed out that the figures weren't quite as bad as the Index of Industrial Production (IIP) actually witnessing an increase of a few basis points over the previous month. The major culprit was the manufacturing sector, which has three-quarters weightage in the IIP while consumer durables segment too remained in the doldrums.

Industrial production grew by just 3% in March as against 8.6% in February. The figure was much lower than average expectations of 5.5-6%. In the corresponding month last year, industrial output grew by a whopping 14.8%. Growth in the manufacturing sector sank to 2.9% from an impressive 16% in the same month last year. The mining sector expanded by 3.8% in March as against 8% in the same month last year. Electricity grew at a 3.7% pace in the month versus 7.9% in March 2007.

As many as 12 out of the 17 industry groups, showed positive growth during March. ‘Jute & Other Vegetable Fibre Textile)’ showed the highest growth of 62.7%, followed by 24.9% in ‘Other Manufacturing Industries’ and 12.7% in ‘Leather and Leather & Fur Products’. On the other hand, ‘Metal Products & Parts’ showed a negative growth of 25.8% followed by 5.8% in ‘Wood & Wood Products; Furniture & Fixtures’ and 5.5% in ‘Textile Products’.

Basic Goods, Capital Goods and Intermediate Goods recorded a growth of 3.1%, 8.6% and 3.5%, respectively compared to 11.9%, 18.1% and 15.3% in the same month last year. Consumer Durables witnessed a negative growth of 2.1% versus 3.8% in March 2007. Consumer Non-durables registered a modest growth of 0.6% as against a strong expansion of 20.2% in the year-ago month. The overall growth in Consumer Goods was (-) 0.1% as against 15.8% in March 2007.

During the fiscal year ended March 2008, the industrial output growth stood at 8.1% versus 11.6% in the previous fiscal year. This is its slowest pace in four years. Industrial production growth would average 6-6.5% in Q1 FY09 as the high base effect of last year gradually wears off. Industrial output will then pick up to around 8% from Q2 FY09 onwards. However, with rising inflation and the risk of further monetary tightening, industrial production growth is most likely to fall. FY09 growth will decelerate to 7.5-8% from 8.1% in FY08.