Trend in industrial production still negative

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New Delhi: The country’s factory output rose 2.4% in November 2008, after a disastrous minus 1.2% growth in October. The rise came largely from the base effect, since factory output in November 2007 had fallen to 4.9% from 12.2% in October.

Though the manufacturing sector, making up 80% of the index of industrial production (IIP), grew, worryingly, the infrastructure sector, which accounts for a quarter of the industrial output, grew only by 2.2%, down from 3.4% in October.

Analysts, therefore, doubt the relative rebound in November output would be sustained in the coming months. In November, for instance, sales of commercial vehicles fell by 48% and worsened to 58.28% in December. The fall in auto industry sales for December, at 18.2%, was the worst in recent history. High borrowing costs, tight credit and the economic slowdown are driving the auto sector into the pit lane.

Sonal Verma, economist, Nomura, said consumer durables showed a pick-up in November, and the main growth drivers in manufacturing were beverages, tobacco, petroleum and coal. However, the growth in capital goods and consumer durables were negative, she said. In November, capital goods production shrank by -2.3%, while consumer durables production fell by 4.2%.

“The trend in growth of overall IIP continues to be negative. Industrial output could contract again in December. There is an inventory pile-up in most industries and it would result in cuts in investment and production, post-November. This means, the GDP growth for FY ‘09 would be 6.8%, while for FY ‘10 is likely to be 5.3%,” she said.

Commerce & industry minister Kamal Nath said the government would hold meetings with representatives of several sectors and exporters on January 21 to see how they have responded to the two stimulus packages. The minister said more steps would be taken if needed.

Suresh Tendulkar, chairman, Prime Minister’s Economic Advisory Council, told FE that November figures indicate that industrial production is improving, adding that the growth for this fiscal should be at least 7%. “Due to many factors, including the fear psychosis that the media is generating, the urban consumer seems to the reluctant to spend. There is no sure shot way to turn their sentiments,” he said.