The Hindu Business Line : Winding down

The last time the IIP was discussed in this column, the numbers for January this year had just been released. The month reported a sedate 5.3 per cent growth, preceded by six months of below 9 per cent growth since April 07. ‘Is the waning momentum an indicator of a slowdown?’, was the question asked.

Four months down the line, the numbers provide no clear ditrection, up one month, down the next. While February and April recorded a growth of 8.6 and 7 per cent respectively, industrial growth in March and May were lower at 3 per cent and 3.8 per cent. One thing is clear. Industrial production is no longer witnessing the double-digit growth it used to. Cumulative growth for April 2007-March 2008, was at 8.1 per when compared to the 11.3 per cent growth recorded last year.

Contributors to the slowdown

While growth in the mining and electricity segments remained fairly stable, there is adeceleration in themanufacturing sector. For April 07- March 08, the manufacturing sector grew only by 8.6 per cent. Figures for April and May show manufacturing growing 7.6 per cent and 3.8 per cent respectively. Rate-sensitive sectors, such as transport equipment and consumer durables fell prey to this unfavourable macro economic environment. In 2007-08, consumer durables declined by 1 per cent, against a 9 per cent growth the previous year, while transport equipment grew a measly 3.3 per cent compared to 15 per cent the previous year. Interestingly, consumer durables and transport equipment, grew 5 per cent and 11.5 per cent respectively in the first two months of 2008-09. Trends in the next few months need to be watched to find out if there are any other triggers to this growth.

Pause in investments?

After growing at a scorching pace since April 2007, growth in capital goods slowed to 2.1 per cent in January, prompting a debate on whether the slowdown, which has so far been affecting consumption, had spread to investments as well.

Figures of the next three months negated these fears, making January seem an aberration. But the number for May, at 2.5 per cent, even considering the effect of a higher base, appears to be taking us right back into that debate. At this juncture, the outlook for the industry may not be very rosy. Monetary measures to curb inflation may continue to hurt growth, what with interest rates spiralling.

PARVATHA VARDHINI C.

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