India Inc’s worst fears come true
Sep 11 2011 , New Delhi
Tags: Economy
High interest rates, input costs lower manufacturing growth
The Indian industry’s fears of a sharp slowdown have been confirmed. Two chambers of industry, CII and Ficci, on Sunday released the findings of surveys of member companies and industry associations, saying manufacturing growth has had a setback up to September this year.
Both surveys cited a variety of reasons, including high interest rates and input costs, which have decelerated output growth in many segments of manufacturing sector.
Official industrial growth data for July are slated to come out on Monday, which are also likely to reproduce the grim picture painted by the surveys. Index of industrial production (IIP) data are available up to June and these have already shown a decline in overall industrial growth to 6.8 per cent in April-June 2011-12 from 9.6 per cent a year ago. Manufacturing growth too has decelerated to 7.5 per cent from 10.3 per cent.
The CII-Ascon survey, covering 86 manufacturing segments, found basic goods, intermediate goods and consumer non-durables to be poor performers up to September.
Only 10.5 per cent of all the segments surveyed, or just eight to nine segments, are expected to record excellent growth of more than 20 per cent in April-September 2011-12, down from 35.7 per cent a year ago.
A visible manifestation of the slowdown is the increase in the number of sectors registering negative growth, which has risen to 25.6 per cent in this year’s survey from 8.7 per cent last year.
“The Ascon survey is a forward-looking indicator and it shows deceleration in growth in a large number of industrial sectors in the first half of 2011-12,” said CII director-general Chandrajit Banerjee.
Groundnut oil (-0.1 per cent), nylon filament yarn (-0.4 per cent), circuit breakers HT (-1.1 per cent), natural gas (-9.7 per cent) and polyester filament yarn (-10.5 per cent) are expected to show negative growth rates in April-September 2011, the survey said.
General and sector-specific issues faced by the industry have also been highlighted in the survey. “The general issues include rise in the cost of raw materials, high cost of credit, infrastructure bottlenecks, land acquisition issues, increasing oil prices, sale of duplicate and spurious products in many segments, and environmental and procedural delays,” the survey said.
Myriad sector-specific issues have also been emphasised in the survey. These include an increase in the international price of fertilisers and raw materials, availability crunch in the rubber industry and a scarce supply of inputs for the metal casting industry.
The cement industry has also been witnessing considerable headwinds. The demand-supply mismatch, acute coal shortage and inadequate rail transport remain key concerns of the sector.
About 74 per cent of the 314 respondents in the Ficci survey said they expected growth to moderate in the second quarter of 2011-12 compared with the same period a year ago. “In fact, except exports, on all other parameters like new investments, capacity utilisation and employment the indices have seen a decline over the past few quarters,” Ficci said.
The Ficci survey evaluated responses from sectors like textiles, capital goods, metals, chemicals, tyres, cement, consumer electronics, batteries, automotive, textiles machinery, leather & footwear, and engineering in large, as well as small and medium industry segments.
Seven of the 12 sectors surveyed are expected to have low to moderate growth in the second quarter of this year while the remaining five -- food processing, automobile, auto components, leather and footwear -- are expected to witness strong growth in the current quarter.
Hardening of interest rates too has affected growth in these segments, which in turn has negatively impacted capacity utilisation and employment. “This worsening of demand scenario is also reflected in the fact that in June 2011 growth of consumer goods had slowed down to 1.6 per cent , which was second lowest growth since October 2009,” the Ficci survey said.
The survey also noted a significant drop in order books of these units in the second quarter from a year ago. Outlook for employment is also bleak as more than half of the respondents said they were not planning to increase work force in next three months.
Given the grave implications of the slowdown, a national manufacturing policy is required urgently, said CII’s Banerjee. “The government and industry are working closely to step up the growth momentum in the manufacturing sector,” he added.
Both surveys cited a variety of reasons, including high interest rates and input costs, which have decelerated output growth in many segments of manufacturing sector.
Official industrial growth data for July are slated to come out on Monday, which are also likely to reproduce the grim picture painted by the surveys. Index of industrial production (IIP) data are available up to June and these have already shown a decline in overall industrial growth to 6.8 per cent in April-June 2011-12 from 9.6 per cent a year ago. Manufacturing growth too has decelerated to 7.5 per cent from 10.3 per cent.
The CII-Ascon survey, covering 86 manufacturing segments, found basic goods, intermediate goods and consumer non-durables to be poor performers up to September.
Only 10.5 per cent of all the segments surveyed, or just eight to nine segments, are expected to record excellent growth of more than 20 per cent in April-September 2011-12, down from 35.7 per cent a year ago.
A visible manifestation of the slowdown is the increase in the number of sectors registering negative growth, which has risen to 25.6 per cent in this year’s survey from 8.7 per cent last year.
“The Ascon survey is a forward-looking indicator and it shows deceleration in growth in a large number of industrial sectors in the first half of 2011-12,” said CII director-general Chandrajit Banerjee.
Groundnut oil (-0.1 per cent), nylon filament yarn (-0.4 per cent), circuit breakers HT (-1.1 per cent), natural gas (-9.7 per cent) and polyester filament yarn (-10.5 per cent) are expected to show negative growth rates in April-September 2011, the survey said.
General and sector-specific issues faced by the industry have also been highlighted in the survey. “The general issues include rise in the cost of raw materials, high cost of credit, infrastructure bottlenecks, land acquisition issues, increasing oil prices, sale of duplicate and spurious products in many segments, and environmental and procedural delays,” the survey said.
Myriad sector-specific issues have also been emphasised in the survey. These include an increase in the international price of fertilisers and raw materials, availability crunch in the rubber industry and a scarce supply of inputs for the metal casting industry.
The cement industry has also been witnessing considerable headwinds. The demand-supply mismatch, acute coal shortage and inadequate rail transport remain key concerns of the sector.
About 74 per cent of the 314 respondents in the Ficci survey said they expected growth to moderate in the second quarter of 2011-12 compared with the same period a year ago. “In fact, except exports, on all other parameters like new investments, capacity utilisation and employment the indices have seen a decline over the past few quarters,” Ficci said.
The Ficci survey evaluated responses from sectors like textiles, capital goods, metals, chemicals, tyres, cement, consumer electronics, batteries, automotive, textiles machinery, leather & footwear, and engineering in large, as well as small and medium industry segments.
Seven of the 12 sectors surveyed are expected to have low to moderate growth in the second quarter of this year while the remaining five -- food processing, automobile, auto components, leather and footwear -- are expected to witness strong growth in the current quarter.
Hardening of interest rates too has affected growth in these segments, which in turn has negatively impacted capacity utilisation and employment. “This worsening of demand scenario is also reflected in the fact that in June 2011 growth of consumer goods had slowed down to 1.6 per cent , which was second lowest growth since October 2009,” the Ficci survey said.
The survey also noted a significant drop in order books of these units in the second quarter from a year ago. Outlook for employment is also bleak as more than half of the respondents said they were not planning to increase work force in next three months.
Given the grave implications of the slowdown, a national manufacturing policy is required urgently, said CII’s Banerjee. “The government and industry are working closely to step up the growth momentum in the manufacturing sector,” he added.
The article was first published in the Financial Chronicle
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