Second stimulus package needed to boost IIP: India Inc

December 12th, 2008 - 8:06 pm ICT by IANS  

New Delhi, Dec 12 (IANS) Industrial production will continue to fall if the government did not give another second stimulus package to prop up stressed sectors, especially manufacturing, the corporate world said Friday.”Despite a global market turmoil, India’s central bank continued to tighten monetary policy until July and the loosening cycle did not commence until October. Hence, the moderation in domestic demand is a result of the tight monetary policy settings in the first nine months,” said Sherman Chan, economist with Moody’s Economy.Com.

“The aggressive monetary easing since October may not have led to an immediate rebound in domestic consumption. As such, manufacturing orders from the domestic sector likely remained modest in November and December,” Chan added.

“On the other hand, India’s export outlook is dismal. Outbound shipments declined in October, but the worst is yet to be seen. Losing support from external orders, India will unlikely see a rebound in manufacturing output any time soon,” she warned.

Added Tushar Poddar, an economist with Goldman Sachs: “Although we were expecting industrial production to be low, we did not anticipate a negative print for October. We, therefore, expect overall activity to be sharply lower in the second half of financial year 2009, after growing by 7.8 percent in the first half.”

“Our estimate for GDP growth remains below consensus at 6.7 percent year-on-year for FY09 with further downside risks, and 5.8 percent for FY10. We continue to expect the Reserve Bank of India (RBI) to ease both the repo and reverse repo rates by 150 and 100 bp respectively by end-March 2009,” Poddar added.

Sajjan Jindal, president of the Associated Chambers of Commerce and Industry (Assocham), said that the reversal in IIP figures are unlikely and stressed sectors like manufacturing real estate, steel, cement, textiles, leather and automotive components, would have to be given a bigger booster doses by government.

“It is in view of this, the Assocham reiterates its demand that another stimulus package of Rs.700 billion (Rs.70,000 crore) is urgently called for to provide relief to Indian Inc., including a reduction of another 200 basis points in CRR,” he said.

Assocham has also sought that the statutory liquidity ratio (SLR) that banks are required to maintain is reduced from 24 percent to 20 percent to help companies access liquidity.

India’s industrial growth fell 0.4 percent in October, compared to a growth of 12.2 percent in the corresponding month last year, according to data released by the Central Statistical Organisation (CSO) Friday.

The index of industrial production (IIP), a measure of industrial activity in the economy, slipped into the negative zone mainly because of the manufacturing sector growth falling to 1.2 percent in October from 13.8 percent a year earlier.

Manufacturing constitutes about 80 percent of the total IIP index.

“Now is the time to immediately release the second stimulus package. To bring the Keynesian multiplier in full effect a third stimulus package must be planned from now and released in mid January 2009 to return the economy to a sustainable growth rate above 7 percent”, said Amit Mitra, secretary general of the Federation of Indian Industry (Ficci).

Now that there has been a reversal in the RBI’s tight monetary policy stance and the government announcing a fiscal stimulus package, Ficci said it hoped this leads to improved growth.

“Given the present situation, the early announcement of the second stimulus package as mentioned by the commerce and industry minister will help in restoring the buoyancy in the industrial production,” Ficci said in a statement.

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