Price impact on industry<br>Weak WPI growth hits manufacturing
By Dr M.S. Kapadia
Price realisation of products, through its profound impact on profit margins, constitutes a vital factor in production decisions. It also has an important bearing on new project investments. The study seeks to examine the impact of changes in prices on output growth and investment decisions.
The Wholesale Price Index for manufactured products is displaying extremely weak trends for the past two years or so. What is more disturbing is that the annual growth rates in the average WPI for manufactured products are lower than those in primary articles comprising farm products and minerals and the fuel, power and lubricants sub-group constituting electricity, mineral oils and coal. As on January 19, 2002, the WPI for manufactured products showed almost zero per cent rise on a YoY basis, while primary articles and fuel, power and lubricants recorded relatively better growth rates of 3 per cent and 3.2 per cent, respectively.
Manufacturing industries, as reflected in Index of Industrial Production (IIP-Manufacturing), are also recording extremely poor output growth rates, which have caused concern among official sources. The YoY growth in the index plummeted to a paltry 1.4 per cent by December 2001; from 3.5 per cent recorded a year ago and 9 per cent in March 2000. In fact, the growth rates dropped precipitously over months in 2001.
Investment trends in manufacturing segment are available only annually, that too with a time-lag of around one year, in CSO's Quick Estimates on national income, consumption expenditure, saving and capital formation. According to latest Quick Estimates, real investment in manufacturing showed a decline from Rs 109,419 crore in 1999-00 to Rs 106,446 crore in 2000-01. Another indicator on investment available with much better frequency of three months is the Quarterly Surveys on Investments brought out by ProjectsToday, a division of Economic Research India Ltd. These Quarterly Surveys dealing with envisaged investments of live projects also showed that investment in new projects in manufacturing almost stagnated during the quarter ended December 2001.
Though a more detailed study to exactly map the change in prices of different sub-sectors to the output changes in the respective sub-sectors could be undertaken, for the present we have limited the scope of this study to average WPI (manufactured products) and the average IIP (manufacturing).
For more details please refer to Projectmonitor Prinit Version.