industrial production loses steam
Dr. M.S. Kapadia
Industrial production, as measured by index of industrial
production (IIP), increased by 8.1 per cent in 2007-08, a steep climb-down from
11.6 per cent in the previous year that enjoyed the decade's best industry feat.
The IIP had gone up by 8.3 per cent average in 2004-05 and 2005-06. The slowdown
occurred broadly over November-March 2007-08 that saw the average growth rate
plummet to 6 per cent from 10 per cent during the preceding seven months.
Manufacturing that accounts for around 79 per cent of IIP slid from 10.5 per
cent to 6.2 per cent and electricity from 7.2 per cent to 5.2 per cent. Mining
held on to around 5 per cent between two periods. It is to be noted that the
performance does not factor the leap year effect of 2008 that pushed up February
mount by around 350 basis points and the fiscal rise by around 30 basis points.
Overall, manufacturing IIP was up by 8.6 per cent over the year, down from 12.5
per cent in 2006-07. Mining and electricity output index rose by 5 per cent (5.4
per cent) and 6.4 per cent (7.2 per cent), respectively.
Capital goods IIP that reflects project investment has escaped with a relatively
slight decline in pace to 16.5 per cent during 2007-08 from 18.2 per cent in
2006-07. However, what has raised alarm is that the average growth in the last
quarter of the fiscal worked out to only around 7 per cent, against 20 per cent
in the first three quarters. All said and done, this was the sixth consecutive
year of a solid-double digit growth for the sector. The decline in pace in other
use-based segments was steeper. Thus, the increase in basic goods IIP fell to
6.9 per cent (10.3 per cent), intermediate goods to 8.7 per cent (12 per cent)
and consumer goods 5.7 per cent (10.1 per cent). Consumer durables fared poorly
with 1 per cent annual decline.
At two-digit levels, basic metal and alloy industries that go into construction
as also form vital material inputs in capital goods increased by 12.2 per cent
in 2007-08 - over 23 per cent in the preceding year and 16 per cent two years
back. Machinery and machine tools (other than transport equipment) rose by 9.3
per cent. Before this, machinery output had increased at 18 per cent average in
2003-04 and 2004-05 and 13 per cent in 2005-06 and 2006-07. This strong feat in
basic metals and alloys and machinery reflected sturdy domestic investment as
also buoyant export demand.
Non-metallic mineral products index was up by 5.8 per cent, half the pace in
preceding two years. Finished steel (carbon) output increased by 5.1 per cent
(13.1 per cent) and cement 8.1 per cent (9.1 per cent) in 2007-08. The rise in
production index of transport equipment and parts dropped to 2.8 per cent,
one-fifth the rate in 2006-07, due to production decline in two and three
wheelers. Among the other two-digit level sub-groups, basic chemicals and
chemical products index (10.4 per cent) and rubber, plastic petroleum and coal
products (8.9 per cent) did reasonably well, but cotton textiles (4.1 per cent)
and textile products (including wearing apparel) (3.3 per cent) fared poorly
with their respective rates working out to one-third those in 2006-07.
[May 19-25, 2008]