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.
But consumers should not be affected by this fear psychosis in the West, Tendulkar said. ?Thankfully, it (the fear) has not spread to the rural market and companies like HUL, which focuses on rural market, are getting better returns compared to their peers who are urban focused,? he observed.
While the Centre has been keen on increasing infrastructure spend to maintain the growth momentum in the current downturn, industry says much more needs to be done to translate that into reality. ?The government has not demonstrated any meaningful action on the ground to push public expenditure on infrastructure, which was expected to be one of the key stimulus in re-powering the economic engine,? said Vinayak Chatterjee, chairman of infrastructure consultancy firm Feedback Ventures.
Analysts said it typically takes 9-12 months for monetary policy changes to take effect, but fiscal policies need to be implemented urgently for results from the stimulus. Rajiv Kumar, director & chief executive of Indian Council for Research on International Economic Relations, points out that the rural market forms only 18% of the country?s GDP. He also said the unemployment rate was increasing and added that SMEs are becoming increasingly unable to make fresh investments. Kumar said the poor growth in industrial production was likely to continue up to this fiscal end and beyond.