Investment goods pull down IIP

After a plunge of 3.2% in March 2012, factory output managed to stay in the positive territory in the first month of the new fiscal year, but barely so.

At 0.1%, the year-on-year growth rate was the slowest since the new series of index of industrial production (IIP) growth with 2004-05 as the base year came into being, with the exception of April 2009 (-1.9%).

The performance in April 2011 was also none-too-good with the industrial output up a meagre 5.3%. The fact that the current year too has opened on a dismal note, unable to capitalise on the advantage of the low base, suggests how grave and systemic the problems affecting the pivotal secondary economy of the country are.

Sector-wise, all the three segments — mining, manufacturing and electricity — were responsible for the big let-down in industrial tempo during April.

In the case of mining, the actual level of output had nosedived 3.1% compared with the year ago.

In manufacturing, which accounts for more than 75% of the total weight in the index, the showing was one of the worst; at 0.1%, manufacturing output was virtually stagnant on a year-on-year basis.

Power generation too had slackened perceptibly, with the incremental growth decelerating to 4.6% from the preceding year’s 6.5%.

Three out of the four broad industry groups in terms of the use-based classification of IIP had acted as a drag on industrial growth during April.

Indicative of a deeper malaise —due mainly to slack demand for investment goods in the economy, which is a part of the larger issue of high interest rates; reduced availability of funds (savings and borrowings) for capital formation; and vitiated climate for investment — the production of capital goods had declined a sharp 16.3% during the month in contrast to a surge of 6.6% in April 2011.

In basic goods, there was a deceleration to a mere 2.3% from 7.1%, while the intermediate goods output had dipped 1.4% as against a rise of 3.9% a year ago.

The data on factory production, however, is not one of unrelieved gloom — unlike investment demand, the consumer goods segment saw some rebound, offering a glimmer of hope.

Production of consumer goods as a whole improved 5.2%, two percentage points higher than in the previous year.

Even more heartening, in both consumer durables and consumer non-durables, the momentum has accelerated somewhat. The pace —from 1.6% to 5% — in respect of consumer durables is striking.

Overall, the industrial index for April was in line with expectations of a slowdown in manufacturing activity.

This is reflected in the fact that, of the 22 industry groups at the three-digit level of classification, output in as many as nine slumped during the month while in six others, the rate of growth was less than 5%. In other words, as much as 68% of the industry groups faced problems in lifting production to a satisfactory level.