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India’s factory output as measured by the Index of Industrial Production (IIP) contracted by 0.1 per cent in 2013-14, owing to the contraction in manufacturing and mining output. In fact, the decline in IIP during the fiscal was the first annual plunge in over the last three decades. The y-o-y growth in IIP which was once at an enviable 8.2 per cent in FY11, has declined by -0.1 per cent in FY14.
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Index of Industrial Production (Y-o-Y % increase) |
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2009-10
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2010-11
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2011-12
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2012-13
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2013-14
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Mining |
7.9
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5.2
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-2.0
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-2.3
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-0.8
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Manufacturing |
4.8
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8.9
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3.0
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1.3
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-0.8
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Electricity |
6.1
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5.5
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8.2
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4.0
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6.1
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Overall IIP |
5.3
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8.2
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2.9
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1.1
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-0.1
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Use-based classification |
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Basic goods |
4.7
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6.0
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5.5
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2.5
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2.0
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Capital goods |
1.0
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14.8
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-4.0
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-6.0
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-3.7
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Intermediate goods |
6.0
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7.4
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-0.6
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1.6
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3
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Consumer goods |
7.7
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8.5
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4.4
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2.4
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-2.6
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Consumer durables |
17.0
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14.2
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2.6
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2.0
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-12.2
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Consumer non-durables |
1.4
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4.2
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5.9
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2.8
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5.2
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The factory output as measured by index of industrial production declined in March 2014, which with the earlier five months of y-o-y reduction pushed the average for FY14 into red zone. The weakening over the year, coming after steep reduction in the growth rate from 8.2 per cent in 2010-11 to 2.9 per cent in 2011-12 and stagnation in the following year, reflects a fast eroding manufacturing sector, the main thrust segment in industry. The fact that the decline in IIP during the fiscal was the first annual plunge in over the three decades, is definitely a concern. In another unnerving development, capital goods production index, which is a surrogate for project investment, has declined for the third consecutive year. This is again dubious first that has not happened in over past two decades.
Intra-year, barring Q2, manufacturing was in the negative zone during the other three quarters. Though mining has ended the fiscal with a decline in outturn, the segment has recorded a steady progress from a steep decline of 4.7 per cent to a nominal decline in Q2 and a positive growth phase in the next two quarters. Power generation, the base infrastructure to industry and in fact to the whole economy, has remained in the relatively decent positive growth phase all through the four quarters.
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Capital Goods Production Index |
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Year |
% increase
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2005-06 |
18.1
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2006-07 |
23.3
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2007-08 |
48.5
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2008-09 |
11.3
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2009-10 |
1.0
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2010-11 |
14.8
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2011-12 |
-4.0
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2012-13 |
-6.0
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2013-14 |
-3.7
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Even when the power infrastructure had quickened the pace, the rot in manufacturing and to some extent in minerals supplying mining which together form nine-tenths of IIP, is indicative of some major blocks to the country’s production facilities on demand side as also supply side involving policy issues.
The scenario is no doubt discouraging: a look into performance of segments for which details are given in IIP releases, gives clues to problem segments, as also to some segments which have defied the meltdown. Thus, in manufacturing that accounts for three-fourths of IIP, the industries which showed lower output during FY14 are - motor vehicles (-9.6 per cent), radio, TV (-27 per cent), office, accounting & computing equipment (-16 per cent), fabricated metal products (-7 per cent), industrial machinery (other than electrical machinery) and medical instruments, etc (-5 per cent each), and gems & jewelery, furniture, etc (-14 per cent).
The 10 industries with negative growth over the year constituted 35 per cent of manufacturing. Among the 12 industries that were into positive growth, there were six industries which suffered slowdown in growth rates. Prominent in this category were textiles (4 per cent), petroleum refinery (5 per cent) and non-metallic mineral products (1 per cent). There were however six industries with around a fourth of manufacturing share that fared better than in FY13, which included export-boosted wearing apparel (23 per cent), chemical & chemical products (9 per cent), electrical machinery (14 per cent) and commercial vehicles (6 per cent).
In mining, which has progressed from 4.7 per cent decline in Q1 to a nominal reduction in Q2 followed by improving positive growth in the next two quarters, coal improved from a decline in Q1 to a positive growth in Q2, but deteriorated to stagnation in the next two quarters. Crude petroleum oil improved from reducing decline in first two quarters to meekly increasing positive rates. Natural gas remained in the negative zone in all four quarters, even as rate of decline dropped in last two quarters.
Electricity grew 6.1 per cent in FY14, following a decent southwest monsoon. Hydro power, including that imported from Bhutan JV, rose 19 per cent enabling most of the step-up in the generation rate during the year. The thermal power and nuclear power increased 4 per cent each.
Going by use-based classification, capital goods have suffered the worst, with the sector serving projects investment splashed in red for the third consecutive year 2013-14, the longest lean period in the post reforms era since around 1992.-93. Indicative of slackening project execution, machinery and project goods import declined 15 per cent during the year, after 6 per cent erosion in the fiscal 2012-13.
The Consumer durables index that covers passenger cars, two wheelers, and white goods as also gems & jewellery has been declining since December 2012. Among the other categories, basic goods, intermediate goods and consumer non-durables increased by 2 per cent, 3 per cent and 5.2 per cent respectively.
Narendra Modi has steered Bharatiya Janata Party to a record absolute majority in 14th Lok Sabha elections, which merits compliments, particularly for getting the mandate on development issues he had underlined in election campaign. Now, the people’s clear verdict is available and sans compulsions of coalition politics that had undermined the country’s growth impulse for quite some years, the expectations from him for hauling the national economy from the current slump and get it back on to the growth path are high. Given his track record as chief minister of Gujarat, we are sure that he would rejuvenate the economy enabling a return to sturdy growth rates. Good days indeed are returning to India!
In this scenario, the downbeat industry, apart from other issues like inflation and infrastructure investment, calls for some urgent policy measures to rejuvenate the sectors that had powered economic growth till recently.
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