Sluggish industrial growth in fastest growing economy raises concern

By: | Published: April 15, 2019 4:44 PM

The trend is concerning with various reports showing rise in unemployment in the society, whose working age population is expected to grow to over a billion people by 2050.

Although WPI was seen inching up during March, industrial growth remained subdued raising concerns over the sustainability of growth in India, a country which comes among the fastest growing economies in the world.

Wholesale price-based inflation rose for the second consecutive month to 3.18 per cent in March from 2.93 per cent in February 2019 and 2.74 per cent in March 2018. The increase in WPI was primarily on the back of rising food and fuel prices, show government data.

The trend is concerning with various reports showing rise in unemployment in the society, whose working age population is expected to grow to over a billion people by 2050, according to the Regional Human Development Report of the United Nations Development Programme (UNDP).

Manufactured goods which accounts for nearly 64 per cent while measuring WPI declined to 2.2 per cent in March compared to 2.3 per cent in February and 3.1 per cent in March 2018. Within manufactured industries, 9 out of the 17 industries recorded fall in growth rates during March 2019 vis-à-vis March 2018 and three industries namely vegetable and animal fats, sugar and leather products continued to show deflationary trend, noted CARE Ratings report.

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A decline in industrial output was also pointed by Index for Inflation (IIP) which recorded a growth of just 0.1 per cent in February compared to 1.7 per cent in January during FY19. According to IIP index, manufacturing output contracted by 0.3 per cent in February 2019 compared to 1.3 per cent expansion witnessed in January 2019 primarily on account of decline in output for machinery, textiles, leather and auto as well as base effect.

“Industrial growth disappointed sharply in February 2018, printing at a 20-month low 0.1% YoY despite favourable base effect. On a sectoral basis, manufacturing has retracted into negative territory after a gap of two months. The significant contraction in capital and intermediate goods do not bode well for industrial momentum lately. Additionally, consumption impulses have notably moderated in rural and urban areas as is indicated by high frequency indicators as well. This implies that Q4 FY2019 GDP is likely to sequentially lose momentum further,” said B Prasanna, Group Head – Global Markets – Sales, Trading and Research.

However, PMI data suggest that manufacturing activities are expected to pick-up momentum in the medium-term, noted Reliance Securities in a report.

“We expect IIP to grow at a moderate pace in 1HFY20E on account of general elections, tighter liquidity and demand concerns. Nonetheless, it is expected to pick-up pace from 2HFY20E onwards,” said Reliance Securities report.

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