Trend watch: Industrial growth decelerates in July
The just released industrial growth numbers point to a slowdown in the economy. The Central Statistical Organization`s quick estimates of Index of Industrial Production (IIP) for the month of July 2007 fell far below the expectations.
The general index stands at 252.2, which was 7.1% in July 2007 compared with 13.2%, a year ago. The cumulative growth for the period April-July 2007-08 witnessed a decline at 9.6% as against 11.1% over the corresponding period of the pervious year.
The industrial production for the mining, manufacturing and electricity sectors grew 4.9%, 7.2% and 7.5% respectively in July`07. During the same period in 2006, these sectors posted growth of 5.1%, 14.3% and 8.9% respectively.
The cumulative growth during April-July 2007-08 over the corresponding period of 2006-07 in the three sectors has been 3.1%, 10.3% and 8.1% respectively compared with 4%,12.3% and 6.1%, a year ago, which moved the overall growth in the general index to 9.6%.
Higher interest rates adversely affected consumer spending and a drop in automobile sales hit the manufacturing structure which brought the decline in industrial growth.
In terms of industries, wood and wood products witnessed a highest growth of 21.1%, followed by 17.5% in basic metal and alloy industries; and 16.1% in jute and other vegetable fiber textiles (except cotton). On the other hand, the industry group- metal products and parts, except machinery and equipment, showed negative growth of 5.1% followed by 4.6% in paper & paper products and printing, publishing and allied industries; and 4.1% in food products.
Industrial production makes a quarter of the USD 854 billion economy. The IIP numbers were below analysts forecast of 9.6%, and as a result stock markets closed lower on Sep. 12, 2007. The Sensex fell 0.24%, or 37.41 points, to 15,505.36. Manufacturing sector which outperformed last year, and led to industrial growth, in sharp contrast this year led the slowdown.
According to use -based classification, production of basic goods sectors was 9.0% in July 2007 compared to 10% in July 2006. Whereas capital goods and intermediate goods witnessed a growth of 12.9% and 4.7% respectively in July 2007, compared with 18.3 and 10.7 in July 2006.
It is noteworthy that the consumer durables such as refrigerators and television recorded a decline in growth of 3.2% as against the growth of 16.1% in July 2006, while consumer non-durables recorded growth of 8.4% from 17.1% last year. The overall growth in consumer goods slowed to 5.3% from 16.8% last year.
A day after the industrial growth numbers presented a major disappointment, close on the heels came another set of alarming data from the government indicating slowdown in the infra growth in the month of July. The growth of six core infrastructure sectors - coal, steel, petroleum refining, electricity, cement and crude registered a decline. The index of six core infrastructure industries registered a growth of 6.3% in July 2007, compared with a growth of 10.9% in July 2006.
Infrastructure sectors constitute 26.7% of the IIP, and the related data is released before the IIP numbers, but the government on the contrary did the reverse by releasing the IIP statistics before infra data. The sector registered a fall in growth rate to 7.1% during July this year compared with 13.2% in July 2006. (y-o-y) June growth was also revised downwards to 9%. This has been the slowest growth in the index in the last nine months. It had slumped to 4.4% last October and it was the first time since March and April 2006 that output grew less than 10% in consecutive months. While the growth slowed down from 11.1% in Apr-Jul 2006-07 to 9.6% during the corresponding quarter of current fiscal.
Recently, finance minister P. Chidambaram had written to PM Manmohan Singh apprising him of the slowdown in key infrastructure sectors and said that bottlenecks to production in these areas must be removed.
``Our assessment is that there has been a slow down in key infrastructure sectors. While there is no evidence of a slow down in investment, bottlenecks to enhanced production need to be addressed and removed,`` he reportedly said.
The crude petroleum production registered a decline in growth of 0.3% during April-July 2007-08 compared with 1.2% during the same period of 2006-07. The petroleum refinery production registered a growth of 11.0% during April-July 2007-08 compared to 12.1% during the same period of 2006-07. Coal production grew 0.6% during April-July 2007-08 compared with an increase of 8.3% during the same period of 2006-07.
``We urge the authorities to reduce interest rates and nudge the entire system to follow suit,`` Habil Khorakiwala, president of the Federation of Indian Chambers of Commerce and Industry (FICCI), a top industry lobby group, said in a statement. ``This would ensure that the manufacturing sector comes back on the high growth track.``
Electricity generation grew 8.1% during April-July 2007-08 compared with 6.2% during the same period of 2006-07. Cement Production grew 7.3% during April-July 2007-08 compared with an increase of 11.1% during the same period of 2006-07. Finished (carbon) steel production grew 5.3% during April-July 2007-08 compared with an increase of 13.3% during the same period of 2006-07.
``The IIP (Index of Industrial Production) figures for July are disappointing,`` Finance Minister P Chidambaram said, but hoped demand will pick up once the festival season kicks off later this month.
Slowdown in industrial growth in July is not that much a matter of concern. Contraction of credit led to steep decline in consumer durables demand,`` said Kamal Nath. ``I am optimistic that the target of 12% manufacturing growth will be achieved.``
The July number is because of relatively high base last year. The Indian economy is
driven by internal demand and not by exports, further first quarter growth in agriculture surged by 3.8%, monsoons were fairly good, stock market is touching new highs and interest rates have stabilized, all this work out positively for India.
The India story, thus, would remain buoyant.
The general index stands at 252.2, which was 7.1% in July 2007 compared with 13.2%, a year ago. The cumulative growth for the period April-July 2007-08 witnessed a decline at 9.6% as against 11.1% over the corresponding period of the pervious year.
The industrial production for the mining, manufacturing and electricity sectors grew 4.9%, 7.2% and 7.5% respectively in July`07. During the same period in 2006, these sectors posted growth of 5.1%, 14.3% and 8.9% respectively.
The cumulative growth during April-July 2007-08 over the corresponding period of 2006-07 in the three sectors has been 3.1%, 10.3% and 8.1% respectively compared with 4%,12.3% and 6.1%, a year ago, which moved the overall growth in the general index to 9.6%.
Higher interest rates adversely affected consumer spending and a drop in automobile sales hit the manufacturing structure which brought the decline in industrial growth.
In terms of industries, wood and wood products witnessed a highest growth of 21.1%, followed by 17.5% in basic metal and alloy industries; and 16.1% in jute and other vegetable fiber textiles (except cotton). On the other hand, the industry group- metal products and parts, except machinery and equipment, showed negative growth of 5.1% followed by 4.6% in paper & paper products and printing, publishing and allied industries; and 4.1% in food products.
Industrial production makes a quarter of the USD 854 billion economy. The IIP numbers were below analysts forecast of 9.6%, and as a result stock markets closed lower on Sep. 12, 2007. The Sensex fell 0.24%, or 37.41 points, to 15,505.36. Manufacturing sector which outperformed last year, and led to industrial growth, in sharp contrast this year led the slowdown.
According to use -based classification, production of basic goods sectors was 9.0% in July 2007 compared to 10% in July 2006. Whereas capital goods and intermediate goods witnessed a growth of 12.9% and 4.7% respectively in July 2007, compared with 18.3 and 10.7 in July 2006.
It is noteworthy that the consumer durables such as refrigerators and television recorded a decline in growth of 3.2% as against the growth of 16.1% in July 2006, while consumer non-durables recorded growth of 8.4% from 17.1% last year. The overall growth in consumer goods slowed to 5.3% from 16.8% last year.
A day after the industrial growth numbers presented a major disappointment, close on the heels came another set of alarming data from the government indicating slowdown in the infra growth in the month of July. The growth of six core infrastructure sectors - coal, steel, petroleum refining, electricity, cement and crude registered a decline. The index of six core infrastructure industries registered a growth of 6.3% in July 2007, compared with a growth of 10.9% in July 2006.
Infrastructure sectors constitute 26.7% of the IIP, and the related data is released before the IIP numbers, but the government on the contrary did the reverse by releasing the IIP statistics before infra data. The sector registered a fall in growth rate to 7.1% during July this year compared with 13.2% in July 2006. (y-o-y) June growth was also revised downwards to 9%. This has been the slowest growth in the index in the last nine months. It had slumped to 4.4% last October and it was the first time since March and April 2006 that output grew less than 10% in consecutive months. While the growth slowed down from 11.1% in Apr-Jul 2006-07 to 9.6% during the corresponding quarter of current fiscal.
Recently, finance minister P. Chidambaram had written to PM Manmohan Singh apprising him of the slowdown in key infrastructure sectors and said that bottlenecks to production in these areas must be removed.
``Our assessment is that there has been a slow down in key infrastructure sectors. While there is no evidence of a slow down in investment, bottlenecks to enhanced production need to be addressed and removed,`` he reportedly said.
The crude petroleum production registered a decline in growth of 0.3% during April-July 2007-08 compared with 1.2% during the same period of 2006-07. The petroleum refinery production registered a growth of 11.0% during April-July 2007-08 compared to 12.1% during the same period of 2006-07. Coal production grew 0.6% during April-July 2007-08 compared with an increase of 8.3% during the same period of 2006-07.
``We urge the authorities to reduce interest rates and nudge the entire system to follow suit,`` Habil Khorakiwala, president of the Federation of Indian Chambers of Commerce and Industry (FICCI), a top industry lobby group, said in a statement. ``This would ensure that the manufacturing sector comes back on the high growth track.``
Electricity generation grew 8.1% during April-July 2007-08 compared with 6.2% during the same period of 2006-07. Cement Production grew 7.3% during April-July 2007-08 compared with an increase of 11.1% during the same period of 2006-07. Finished (carbon) steel production grew 5.3% during April-July 2007-08 compared with an increase of 13.3% during the same period of 2006-07.
``The IIP (Index of Industrial Production) figures for July are disappointing,`` Finance Minister P Chidambaram said, but hoped demand will pick up once the festival season kicks off later this month.
Slowdown in industrial growth in July is not that much a matter of concern. Contraction of credit led to steep decline in consumer durables demand,`` said Kamal Nath. ``I am optimistic that the target of 12% manufacturing growth will be achieved.``
The July number is because of relatively high base last year. The Indian economy is
driven by internal demand and not by exports, further first quarter growth in agriculture surged by 3.8%, monsoons were fairly good, stock market is touching new highs and interest rates have stabilized, all this work out positively for India.
The India story, thus, would remain buoyant.
I. What are your thoughts of growth number for India
ReplyDeletein next 1. month. 2. Last quarter.
3. next year ( 2008).
II. Will the government increase interest rate? decrease or keep same?
Question 2: There will be varation in interest rate by +/- 0.5 % for next 6 months due to Election. After Election interest will go down by 2 to 3 % .
ReplyDeleteeven though I wouldn't agree with this stratergy, I think your forecast for interest rate seems to be inline to what mights happen.
ReplyDeleteI want to know reason as why don't you agree with this
ReplyDelete