Index of Industrial Production - January FY14: CARE Ratings

CARE Ratings: Index of Industrial Production - January FY14

After registering a negative growth for three successive months, Index of Industrial production (IIP) for the month of January'14 bounced back to a positive territory; albeit marginally at 0.1 percent (CARE Ratings was one of the few agencies to predict positive growth in February). However, this cannot be interpreted as any kind of change in prospects as there are few encouraging signs in the performance of various constituents of the index. The weak performance in Industrial output continues to prevail mainly due to the declining consumer demand on account of high inflation and absence of sufficient investment due to prevailing high interest rates.

Cumulative growth in Apr-Jan FY14 was nil (0 percent) as against positive growth of 1 percent in the corresponding period of the previous year. To reach of growth rate of - 0.2 percent for the full year as per the GDP estimates, growth has to average 1.1 percent in the next two months.

Core Industries PerformanceThe Eight Core Industries recorded a positive growth for the third straight month at 1.6 percent in January'14, which is much lower than the 8.3 percent growth recorded in the corresponding period last fiscal. Besides, the cumulative output growth of these eight core sectors, having a weight of 37.9 percent in the overall index, lowered to 2.4 percent (April- Jan'14), when compared with 6.9 percent (April-Jan'13).

The core industry growth during the month was offset by the continued contraction in coal (-0.7 percent), natural gas (-5.2 percent) and refinery products (-4.5 percent) output. The remaining five core industries recorded a positive growth. Of these five industries, steel production recorded a growth of 3.4 percent followed by crude oil (3 percent), cement (1.5 percent) and fertilizers (1.2 percent). Electricity was the only sector which posted a healthy growth during the month at 5.7 percent. However, the growth in electricity generated has been lower than that recorded in the previous fiscal (6.3 percent) clearly reflecting the impact of continuously falling coal production.

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Impact on GrowthThe growth in industrial output continues to remain subdued with a growth rate of merely 0.1 percent for the month of January'14. Weak domestic demand, higher raw material costs on account of high inflation, interest rate hikes; supply side bottlenecks, low business sentiment and slow movement in implementation of reforms have impaired the performance resulting in weak industrial activity. It is quite evident, that the persistent volatility in the industrial output is likely to delay the expected revival in growth. Hence, achievement of the projected economic growth of 4.9 percent appears to be less optimistic. Hence, the biggest challenge is to revive manufacturing for overall growth to pick up. This should be taken up with urgency in FY15.

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