Call for 3rd revival plan on IIP slump

Written by Economy Bureau | New Delhi | Updated: Feb 13 2009, 06:56am hrs
Factory output contracted 2% in December, raising concerns that the 7.1% GDP growth forecast for 2008-09 would have to be pared unless January saw a significant turnaround. IIP figures, released by the Central Statistical Organisation on Thursday, showed manufacturing output shrinking 2.5% in December, against an 8.5% growth a year earlier. The downturn, along with the decline in WPI-based inflation to 4.39% from 5.07% a week earlier, showed the economy was rapidly cooling off.

This is the second time after October that industrial production has shrunk. It contracted 0.3%the first time the country saw negative growth since April 1993. November recorded a marginal 1.7% growth. Decembers decline has been factored into the interim Budget that the government will announce on Monday. After the two stimulus packages of December and January, the government will be under pressure to announce another one now to revive the economy.

While the BSE Sensex closed on Thursday at 9,465.83, down 1.59%, government officials are confident that January IIP numbers would be better. In December, we were expecting an unsatisfactory situation, thats why the government took big stimulus steps. In January, we expect things to be better, Department of Industrial Policy & Promotion secretary Ajay Shankar told reporters after the numbers were released.

In her address to the joint session of Parliament, President Pratibha Patil also said, Even in the prevailing adverse global environment, our economyit is hopedwould still register a relatively high growth rate. Her speech is written by the Cabinet and reflects the governments views for the year ahead.

Leading indictors had already shown a 58% dip in commercial vehicle sales in December, along with a 51% slide in the NSEs Nifty. While there was a rise of 12.7% in cement dispatches and of 3.7% in railway freight, they were not enough to counteract the negatives. The IIP figures for December show consumer demand has been hit the worst. Demand for consumer non-durables shrunk 12.8%, while that of durableswhich includes demand for cars, electronic goods, and others--also contracted 0.1%.

The only bright sign is the slight revival of growth in capital goods output, a lead indicator of investment activity, which rose 4.2% year-on-year, after contracting 0.1% in November. However, Nomura Bank economist Sonal Verma said unless there was a sustained pick-up in both domestic and external demand, industrial output growth would probably remain weak, especially given the inventory overhang.

Overall, industrial output growth for April-December 2008 was just 3.2%, against 9% in the same period a year earlier and 4.8% projected for this year. Commerce & industry minister Kamal Nath made a case for lowering interest rates to help give consumer spending a fillip. Our interest rates are too high. We need to bring down the interest rates, the minister said.