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Monday, 19 May 2014
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India’s factory output suffers first disintegration after over 30 years

Index of Industrial Production_ProjectsToday


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.


Index of Industrial Production (Y-o-Y % increase)  
 Overall IIP
Use-based classification
 Basic goods
 Capital goods
 Intermediate goods
 Consumer goods
 Consumer durables
 Consumer non-durables

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.


  Capital Goods Production Index
% increase

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.


Manufacturing Sector Developments


  • Asahi India Glass has commenced work on capacity expansion of the laminated glass unit located at Bawal, Haryana
  • Odisha govt. has established a project monitoring group (PMG) to expedite the process of project clearance
  • Jaypee Group will make an initial investment of Rs 18,000 crore to set up a semiconductor fabrication unit in India
  • CRI Pumps has inaugurated the Phase-I of its manufacturing unit in the SEZ of State Industries Promotion Corporation of Tamil Nadu
  • Saisirish Aqua Farms is setting up a 15 tonne per day capacity shrimp processing unit at Arugolanu in Andhra Pradesh
  • Mehali Papers is looking forward to setting up a 2.4 lakh tonne per annum paper unit at Vagra, in Bharuch district of Gujarat
  • IFGL Refractories is looking to expand the capacities of its Kandla unit located in Gujarat and its Ohio unit in the US


Infrastructure Sector Developments


  • Adani Ports & Special Economic Zone has inked a definitive agreement with L&T Infrastructure Development Projects and Tata Steel to acquire 100 per cent stake in Dhamra Port Company
  • Ashiana Housing has unveiled a residential project, ‘Ashiana Surbhi,’ at Bhiwadi, Rajasthan
  • Vaishali Industrial Park is looking forward to setting up a new industrial park at Mahua, in Vaishali district of Bihar
  • Kandla Port Trust has invited bids for work related to the appointment of a technical advisor at the Gujarat port
  • HCC Concessions has completed the first leg of the Baharampore Farakka Highway project, the largest PPP highway project in West Bengal
  • Haryana govt. has accorded approval to provide financial assistance for an extension of Delhi metro rail project, Phase-III
  • The Ministry of Communications & Information Technology is looking forward to invest Rs 5,000 crore in expanding the basic mobile coverage in north-eastern states


Power Sector Developments


  • Welspun Solar Kannada has commissioned a 19 MW solar power plant located at Chitradurga district of Karnataka
  • NTPC has invited bids for balance work of its 3 x 250 MW coal-based power project at Salakati in Assam
  • BHEL has commissioned Unit-I of the 600 MW Angul coal-based power project in Orissa
  • MoEF has granted environment clearance for the proposed 500 MW coal-based power project at Barauni Bihar
  • Unit-I, II and V of SJVN’s Rampur hydroelectric power project in Shimla district of Himachal Pradesh, have begun commercial operations
  • NHPC and Kerala State Electricity Board have inked a pact for the development of solar power projects in Kerala


Quote of the week:


Dr.M S Kapadia_Economics Research India Pvt. Ltd._ProjectsToday  
"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."

Dr. M S Kapadia, Director,
Economic Research India Pvt.Ltd.


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