Slowdown in industrial growth rings alarm bells (Roundup)

May 13th, 2008 - 1:08 am ICT by admin  

New Delhi, May 12 (IANS) India’s industrial production growth continued its downward slump since September causing concern to industry even though government was optimistic that it would not adversely impact GDP growth which could still touch 8-8.5 percent this year. Government data showed India’s industrial production growth rate was just three percent this March, compared to 14.7 percent in March 2007. The overall growth rate in last fiscal, 2007-08, was 8.1 percent, down from 11.6 percent in 2006-07.

“The industrial production growth rate is not in a comfortable situation. Since September, there has been a slowdown trend. It will have an adverse impact on the country’s gross domestic product (GDP) growth rate,” leading economist D.H. Pai Panandikar told IANS.

“The high price of oil in the international market, hardening of rupees, high increase in food prices, and rise in prices of metal in the international market have slowed down India’s industrial production,” Panandikar added.

The CSO data showed that in March 2008 the consumer durables sector actually showed a negative growth rate of minus 2.1 percent, compared to March 2007, while the consumer non-durables sector showed a growth rate of only 0.6 percent. The overall growth in consumer goods was also negative, minus 0.1 percent.

“The increase in food prices has forced the common people to spend much on essential commodities, and they are left with less money for the industrial products. There are capacity constraints,” Panandikar said.

“If industrial production growth rate does not pick up, we should not expect more than 8 percent GDP growth, and the government’s tax revenue collection will not be so high either,” he predicted.

Industry bodies are now seeking more incentives to cope with the situation arising out of high inflation and poor growth rate.

“The poor growth in industrial sector is a matter of concern, and the government should give a leg-up to the industry by providing right environment including interest rate revision,” said Federation of Indian Chambers of Commerce and Industry (Ficci) secretary general Amit Mitra.

“Performance of the manufacturing sector is expected to be lower even in the first quarter of 2008-09. Some of the major concerns of Indian industry such as increase in the prices of raw material and high interest cost continue to remain un-addressed,” Mitra said.

“The government should take up infrastructure projects on a large scale, and should take another look at the incentives for industry. The slowdown in industrial production is also a result of subsidy and high interest rates,” said Ficci economist Ranjan Roy.

The sectors that actually showed negative growth in March this year included cotton textiles; textile products including wearing apparel; wood and wood products, furniture and fixtures; metal products and parts except machinery and equipment; and transport equipment and parts.

The negative growth in the metal products and parts except machinery and equipment sector in March was to the tune of 25.8 percent.

News of the slowdown in industrial production growth comes as the government struggles to rein in inflation, which soared to 7.61 percent for the week ended April 26.

“The major industrial products are showing signs of slowdown with the textile sector taking hit with negative growth. It is a major concern,” a senior official at Planning Commission said.

“The growth in industrial production in January this year was 5.3 percent, while the overall growth in April-January 2007-08 was 8.7 percent against 8.1 percent recorded for April-March 2007-08,” the official added.

Asked to comment on the slowdown in industrial production growth, Planning Commission Deputy Chairman Montek Singh Ahluwalia said eight to 8.5 percent gross domestic product (GDP) growth was still not an impossible proposition.

“Though I have not yet seen the IIP figures, the GDP growth rate of eight to 8.5 percent is quite possible during the current fiscal,” Ahluwalia said.

Associated Chambers of Commerce and Industry (Assocham) president Venugopal N. Dhoot held high inflation primarily responsible for the “extremely poor performance” of the industry.

“High inflation for over a year has increased the input cost for manufacturing substantially, while high fuel prices have augmented transportation costs, the two factors proving lethal for industrial production,” Dhoot said.

According to the CSO figure, the manufacturing sector registered only 8.6 percent growth in 2007-08 against 12.5 percent in 2006-7, while power sector grew at 6.4 percent during 2007-08 against 7.2 percent in the previous fiscal.

Dhoot said: “The severe loss in industrial production and manufacturing, India’s GDP projections will suffer major hits for the current fiscal. The government must take sufficient measures to put proper infrastructure in place for industrial and employment growth.”

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