The Telegraph
Saturday , April 12 , 2014

Number niggle in recovery run
Industry output dips 1.9% in February

New Delhi, April 11: After showing feeble signs of recovery in January, industrial output contracted 1.9 per cent in February because of poor performance of the manufacturing sector, particularly capital goods, consumer durables and non-durables.

Analysts said bold reforms and the easing of regulatory hurdles to create a climate for new investments should be the priority of the next government.

During the April-February period of the last fiscal, factory output contracted 0.1 per cent against a growth of 0.9 per cent in the same period of the previous year, according to data released by the Central Statistics Office.

Factory output started declining in October, when IIP contracted 1.2 per cent, and continued till December before slightly picking up in January at 0.1 per cent.

Bhupali Gursale, economist with Angel Broking, said, “The contraction in industrial activity in February is a negative surprise against the market’s expectation of slight growth. Capital as well as consumer goods (both durable and non-durable) have dragged the overall index substantially by about 400 basis points. Despite subdued 1.1 per cent growth in 2012-13 on account of the weakness in both consumption as well as investment, we expect IIP to report a flat performance during fiscal 2013-14.”

Manufacturing, which constitutes over 75 per cent of the index, declined 3.7 per cent in February against a growth of 2.1 per cent in the same month a year ago.

During April-February, the manufacturing sector contracted 0.7 per cent compared with a 1 per cent growth in the year-ago period.

“The contraction in manufacturing in February 2014 is the highest since October 2011. Such a steep fall disproves that growth has bottomed out. Both consumer demand and investment conditions seem to be weakening, thereby dampening the outlook for manufacturing,” Arbind Prasad, director-general of Ficci, said.

Assocham said “discouraging cheap imports of various manufactured goods such as electronics, chemicals and steel was key to kick-starting domestic manufacturing”.

The production of capital goods, a barometer of demand, shrank 17.4 per cent in February in sharp contrast to an expansion of 9.1 per cent in the same month last year. The segment declined 2.5 per cent in April-February over a contraction of 7.7 per cent in the comparable period.

Output of consumer goods declined 4.5 per cent in February compared with a growth of 0.8 per cent a year earlier.

Consumer durables contracted 9.3 per cent in February against a decline of 2.6 per cent previously.

Production of consumer non-durables dropped 1.2 per cent compared with an increase of 3.2 per cent in February last year.

Aditi Nayar, senior economist with rating agency Icra, said, “The deterioration in industrial performance in February was led primarily by capital goods and consumer non-durables. The former partly reflects an adverse base effect, in addition to the persisting sluggishness in investment activity. The deterioration in non-durables was led by a sharp contraction in apparel (-21.3 per cent), which is more likely to reflect a fall in export shipments rather than signalling a new downturn in domestic consumption demand.”

The only redeeming feature was the increase in power generation by 11.5 per cent in February compared with an output drop of 3.2 per cent in the same month last year.

Also, mining expanded 1.4 per cent in February against a dip of 7.7 per a year earlier.

Overall, 13 of the 22 industry groups in manufacturing showed negative growth in February compared to the corresponding month of 2012.