The vice-like grip of a slowdown

For the third time in four months – and for the second time in the first quarter of the current fiscal – factory output as measured by the representative index of industrial production contracted by 1.8% in June. A year ago, there was a handsome spurt of 9.5%. These data conclusively establish the fact that the industrial economy continues to be in the vice-like grip of a slowdown.

Coming on top of an equally tepid performance in April 2012 — growth rate down by 0.9% – and in May — index up by a meagre 2.5% — during the first three months of 2012-13, industrial production had actually declined by 0.1% as against a jump of 6.9% during the comparable period of the previous fiscal year.

The heavyweight, manufacturing, had put up a pathetic show in June 2012, with production in aggregate terms, down by 3.2%; in the same month of 2011, this segment had seen a rise of 11.1%.  However, both mining and electricity had fared relatively better, with the pace of production accelerating to 0.6% from (-1.4%) in mining and to 8.8% from 8% in power generation.

However, the use-based classification of the industrial index is very revealing. It throws up the interesting fact that, while there has been a high degree of volatility in regard to capital goods output, activity in the intermediate goods sector is rather low key. In terms of statistics for June, growth rate has swung from one extreme of 38.7% to another extreme of (-) 27.9% during this period and the average for the first quarter from 17% to (-)19.6% in respect of capital goods; for the intermediate goods, whether for June or the first quarter of both these years, the growth rate is virtually flat. The inference from the slump in capital goods and the less — than adequate tempo in goods that are crucial to the final stage of output, is that industry may continue to be in the doldrums for some time.

While the broad picture in regard to consumer goods is also none-too-good in June and in the first three months of the current year, consumer durables seems to have acquitted itself fairly well. The year-on-year surge was 9.1% from 1.6% during the month and 8% from 2.7% in the first quarter.

Basic goods and consumer non-durables have put up a disappointing show in May, thereby contributing to the marked deceleration in the overall rate of industrial growth. It is noteworthy that, in the case of basic goods, the growth in June  2012 and in the first quarter of 2012-13 was about half of what it was a year ago.