IIP: Expect industrial growth to recover over next fiscal

CRISIL Research has come out with its report on IIP data for January 2013. According to the research firm, the industrial growth is expected to recover somewhat over the next fiscal aided by a revival in consumption demand due to higher farm income and lower interest rates.

Industrial output grew by 2.4% in January 2013 on year-on-year basis. However, during this fiscal so far it has contracted in six out of ten months. As a consequence the cumulative industrial output growth for the April-Jan period is a paltry 0.9%. Manufacturing sector grew at 2.7% in January 2013 after contracting for the previous two months. Weak consumption and investment demand on the domestic front and sluggish exports on the external front has hit the manufacturing sector hard. Output of 11 out of 22 manufacturing industry groups at a 2-digit classification contracted in January 2013 .At use based level, output of consumer goods sector grew after a gap of two months, aided by a growth in output of consumer non-durables. The mining sector continues to be in trouble plagued by policy hurdles. Output of the eight core infra industries having nearly 38% weight in IIP, grew by 3.9% in January 2013 as compared to 2.5% a month ago. The infra industries that witnessed negative growth in January 2013 were crude oil, natural gas, fertilizers and cement. Output gap (the difference between the actual growth and the estimated potential growth adjusted for seasonal and irregular effects) for the manufacturing sector is in the negative territory since April 2011 and stood at -6.8% in January 2013. This shows that manufacturing sector has consistently been underperforming. Although the Union Budget 2013-14 by announcing some measures such as investment allowance of 15% on investment worth Rs 100 crore or more, zero customs duty on import of plant and machinery for semiconductor wafer fab manufacturing, setting up of 2 more industrial corridor etc has tried to revive industrial growth and investment in the country, much would depend upon how quickly the issues relating to mining rights, land acquisition, environmental clearances, etc are satisfactorily resolved. Yet, we expect the industrial growth to recover somewhat over the next fiscal aided by a revival in consumption demand due to – (i) higher farm income (assuming normal monsoon) and (ii) lower interest rates (RBI is expected to cut repo rate by 50-75 basis points by March-2014 in view of falling inflation). Disclaimer: CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL Limited has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. The Centre for Economic Research, CRISIL (C-CER) operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is
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