Industrial output at steepest level in 16 years

July 15, 2009 11:16 am

 
Industrial output in March slumped by its steepest level in 16 years as the global economic recession dampened demand for Indian exports. The sharp contraction has raised expectations of further interest rate cuts by Reserve Bank of India even as there are hopes the Indian economy had seen its worst and was set for a recovery.
 
Factory output in March fell 2.3 per cent from a year ago, the third fall in the last four months, and much sharper than our estimate of 0.5 per cent contraction. The index of industrial production had grown 5.5 per cent in March last year.
 
Manufacturing output, which has 80 per cent weightage in IIP, fell 3.3 per cent compared to a 5.7 per cent growth in the same month last year. Output was dragged down by an 8.2 per cent drop in capital goods as against a 20 per cent growth in March 2008. Other segments such as consumer durables showed an improvement jumping 8.3 per cent from a year earlier.
 
Industrial output in 2008-09 slumped as the credit squeeze forced companies to delay expansion plans as well as slash production as exports suffered. However, despite the shocking numbers for March and a subdued 2.4 per cent growth for 2008-09 compared to 8.5 per cent growth in the previous financial year, there is optimisim about recovery in the economy from April.
 
ABN AMRO, in a report, said that Purchasing Managers’ Index increased to 53.3 in April from 49.5 a month ago. A reading above 50 indicates an improvement in factory output. Signs of a pickup in economic activity are also indicated in an improvement in car and cement sales. Passenger car sales rose 4.2 per cent in April from a year earlier after a 1 per cent gain in March, while cement production jumped 10.1 per cent in March.
 
Venugopal Dhoot, Chairman, Videocon Industries, said the new government is expected to announce more stimulus packages. “Although RBI is making money available, it is still  not available to the common man… the rate is around 12-13 per cent, which requires significant changes… that will be done when the new government comes in.”
 
Is there a significant improvement in the white goods space? “For Videocon, the white goods market has gone up… the sales of refrigerators and ACs go up in summers… sale of colour television has gone up because of the IPL matches… other players like LG and  Samsung are also doing well… so looking at a few numbers, we are not very worried…”
 
The sharp contraction in IIP has raised expectations of more rate cuts to boost the economy. RBI has already cut key rates by 425 basis points, and any sharp decrease in rates is unlikely. India now waits for the new government to speed up economic reforms, protect jobs and economic growth.