The Hindu Business Line : Different cycles for different sectors

Tracing India’s index of industrial production (IIP) over the past two years tells the complete story of how the slowdown and the subsequent recovery unfolded. Industrial activity, which grew strongly between 2006 and early 2008, scaled a new peak in March 2008. The month marked new production records for many sectors- automobiles, cement, steel and coal. The buoyancy of March gave way to a sharp correction the very next month. What would have normally been a seasona l blip (history shows that the IIP has invariably peaked in March every year followed by a dip in April) stretched into several months of tepid numbers, before the index finally bottomed out in October 2008.

The above trends in the IIP, however, underplay the vastly different cycles that different sectors have experienced in this slowdown. Trends in monthly production/sales numbers (for the sectors which disclose them), show that cement, passenger cars, consumer durables and two-wheelers were among the least impacted by the slowdown. Bottoming out between July and December 2008, they managed to rebound so strongly from their lows that sales and output have already surpassed records set last March.

On the other hand, sectors such as commercial vehicles, utility vehicles were so severely impacted that despite a substantial expansion in sales numbers this year, their present sales remain well below their peaks of last year. There has even been a third set of sectors such as steel, coal and power, which have remained largely immune to the slowdown. Save for a seasonal blip last April, these sectors have remained on a broad upward trajectory through the ups and downs in other sectors.

The cycle in the case of capital goods has been among the least decisive. After breaching a new record in March 2008, the sector saw a sharp seasonal blip in April 2008. The index followed a broad uptrend until March this year, but has registered a sharp setback in April. Whether this is just a seasonal blip, which will be recouped next month or will stretch into the coming months still remains to be seen.

Some more than others

The progress that sectors made on the road to recovery depended largely on the severity of the damage they took last year. Among the IIP constituents, capital goods was undoubtedly the worst hit, suffering a 33 per cent contraction from peak to trough. Mining and durables too saw indices fell by a fourth before recovering. Basic goods (industrial feedstock) and manufacturing, the sectors highly represented in the listed space were among the ones to suffer the least, with the indices shrinking just 9 and 15 per cent from their peak to trough.

There were divergences within sectors too. The phase of contraction for the automobile sector lasted between March and December 2008, after which monthly sales began to climb. But while passenger car sales fell by 28 per cent down peak to trough, sales of utility vehicles fell to a third of their peak levels by December. Medium and heavy commercial vehicles saw their sales plunge by a precipitous 80 per cent, but two-wheelers got away with just a 22 per cent decline. That explains why sales of two-wheelers and passenger cars are already back to reasonable year-on-year growth, while commercial and utility vehicles, despite a substantial rebound from their lows, will take time to get back to growth.

AARATI KRISHNAN