Current Affairs-Indian Economic Survey-2012-13: Industrial Growth Expected to Improve

Industrial Growth Expected to Improve

The index of industrial production (IIP) with 2004-05 as base is the leading indicator for industrial performance in the country. In compilation on a monthly basis, the current IIP series-based on 399 products/product groups is aggregated into three broad groups of mining, manufacturing and electricity. The mining sector production has contracted in the last six quarters. The contraction in the current years was largely because of decline in natural gas and crude petroleum output. There was, however, a sharp pick-up in growth in October 2012 with manufacturing growth improving to 9.8 per cent, the highest recorded since June, 2011. 

In terms of the use-based classification of industries, the capital goods sector sustained negative growth in the last six quarters. Growth in the consumer durable sector continued to fluctuate, turning negative in Q4 of 2011-12, 0.7 per cent in Q2 and 3.2 per cent in Q3 of 2012-13. The growth of consumer durables at 16.9 per cent was the highest in the last 20 months. 

The moderation in industrial growth, particularly in the manufacturing sector, is largely attributed to sluggish growth of investment, squeezed margins of the corporate sector, deceleration in the rate of growth of credit flows and the fragile global economic recovery. 

The Gross Capital Formation (GCF) in the industrial sector comprising mining, manufacturing, electricity and construction recorded an average growth of 13.02 per cent during 2004-05 to 2011-12. Growth turned negative during 2008-09 and again in 2011-12. 

The decline in overall share of GCF in industry in the total GCF for the economy and overall negative annual growth during 2008-09 and 2011-12 was largely due to a negative growth in GCF in the registered and unregistered manufacturing sector. 

The sluggish industrial performance also affected corporate performance. The rate of growth of sales of the corporate sector particularly in respect of listed manufacturing companies for the private sector declined from an average of 28.8 per cent in Q1 of 2010-11 to 11.4 per cent in Q2 of 2012-13. Together with a deceleration in the rate of growth of sales, the ratio of net profit to sales also moderated. 

As industrial production remained sluggish in 2011-12 and the moderation continued during the current financial year. Infrastructure and energy constraints, decline in demand for India’s exports and fragile recovery in investment are the risk factors. The latest seasonally adjusted annualized growth of industrial output indicate that the growth of the sector could remain moderately positive at around 3 per cent for the current year. 

Apart from weak investment climate, industrial sector performance remained subdued due to infrastructure bottlenecks. Industrial growth rate moderated due to sharp decline in output of natural gas, subdued performance of the coal sector and its resultant impact on thermal power generation, and slow pace of project implementation in rail, road and port sectors.