The Hindu Business Line : Jury is still out on extent of slowdown

Bangalore, Dec. 16 Even as the index of industrial production went into negative territory in October, there are varying views on the extent of the slowdown.

In its November issue of the ‘Monthly Review of the Indian Economy,’ the Centre for Monitoring Indian Economy (CMIE) observed, “While the IIP (index of industrial production) grew by a meagre 4.9 per cent in the first half of 2008-09, the inflation-adjusted sales of manufacturing companies recorded an excellent growth in output of 12 per cent. We have always held the view that the quality of the IIP has deteriorated sharply in recent times.”

This view was also aired by the former Finance Minister, Mr P. Chidambaram, when IIP growth was a mere 1.3 per cent in August. CMIE has predicted a growth rate of over 8 per cent this fiscal.

Investments shelved

On the investment outlook, a study conducted by CMIE CapEx Service indicated, “Most of the companies are not facing any problems in financing their capital outlay. We believe that of the Rs 72.4 lakh crore outstanding investment as of September 2008, the ones that are under implementation (45 per cent) will get commissioned successfully, while projects that are in the initial stages run the risk of getting shelved.”

The first half saw projects worth Rs 76,538 crore being shelved. Fresh investment worth Rs 1.6 lakh crore was announced between October 1 and November 15, “lower than the flow of fresh investment in preceding quarters.”

It also said, “The share of steel companies in total outstanding investments amounts to a significant 57 per cent. Most of the steel majors would be able to leverage their strong financial profile to fund their ongoing projects and secure financial closure for their new projects.”

Alarm bells

However, alarm bells are ringing in industry. Joint Managing Director of Hyderabad-based Suryavanshi Spinning, a yarn exporter, Mr M.K. Agarwal, told Business Line: “Exports this calendar year were 15 per cent of last year. Last calendar year, more than 50 per cent of our output was exported. Our exports are to Brazil and Turkey. Brazil’s currency devaluation and Turkey’s imposition of anti-dumping duty has hit us. As a result, there is a glut in the domestic market. Domestic consumption needs to be increased.”

Mr Sajan Thomas of Kottayam-based Paragon Rubber, a manufacturer of hawai chappals, said: “The rise in prices of synthetic rubber, linked to crude oil product prices, hit us earlier, leading to a rise in prices of natural rubber, as the two are substitutes. Now, input costs have fallen but there is no demand.”

Such alarms notwithstanding, another positive indicator was credit growth. The credit deposit ratio between April and November end this year was 80 per cent, according to figures from the Reserve Bank of India.

For the corresponding period of last year, the CD ratio was 49 per cent. Bankers confirmed the robust credit off take. Vijaya Bank’s Chairman and Managing Director, Mr Albert Tauro, said, “Credit availability is not problem for productive sectors of the economy. For infrastructure sectors, credit availability has been actually been prioritised.” Off-take of loans, cash credit and overdrafts, was about Rs 3.61 lakh crore this year so far, against Rs 1.67 lakh crore for the same period of the last.

Score card

According to CMIE, in the quarter ended September 2008, “Corporate India reported 34.1 per cent rise in net sales, the largest quarterly growth in the last 10 years.

“However, net profits plummeted by 47.8 per cent as huge losses incurred by refineries ate into 50 per cent of Corporate India’s PAT for the third consecutive quarter. We expect Corporate India to report a similar performance in the December 2008 quarter.”

The report continues: “All the large industries were in the pink of their health at the end of March 2008. Although their liquidity position may have deteriorated in the last seven months, operations of Corporate India are unlikely to be hit by global financial crisis.”

Economic health

The physical indicators of economic health – coal output, refinery throughput, petro-products, hydel output, rail freight traffic and cargo traffic – are not alarming. Coal production increased by 7.9 per cent in the first half, compared to a rise of 2.8 per cent in the same period last year.

Overall refinery throughput in September increased by 2.8 per cent to 131 lakh tonnes.

The review cites data from the Petroleum Planning and Analysis Cell to show that consumption of petro-products in India grew by 5 per cent to 647.3 lakh tonnes in April-September.

Demand for high-speed diesel went up 11.8 per cent during this period and that of naphtha by 4.5 per cent. Indian Railways carried 65.9 million tonnes (mt) of in September 2008, short of its target of 68.3 mt but up 8.2 per cent over the same period last year.

However, the growth in cargo traffic at major ports, at 1.1 per cent in September, was “the slowest recorded in 29 months,” in which the drop in iron ore traffic played a big role. Air passenger traffic fell over June, July and August.