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'Drought notwithstanding, industry on its way up'
January 27, 2003 13:48 IST
Despite reeling under the worst drought in the last 15 years, the Indian industry continued its northward surge with the first half of the current fiscal registering impressive growth, a clear pointer to the industrial recovery and upbeat business confidence.
Industrial data for the first seven months of this fiscal clearly points to encouraging signals for the economy. An industrial growth of 4.3 per cent in the first quarter followed by a 6.4 per cent growth in the second signals further strengthening of the current industrial recovery, the National Council for Applied Economic Research said in its latest quarterly review (December 2002).
The industrial growth was boosted by strong recovery in infrastructure industries, capital goods and basic goods sector as well as consumer goods.
''Also, retaining of the Business Confidence Index in the latest round of Business Expectation Survey of NCAER at the same level as in June 2002 indicates that the impact of delayed monsoon has failed to significantly dampen the reviving business optimism,'' it said.
NCAER said even though the manufacturing sector, riding on the impressive gains made by segments like motorcycle, colour television, refrigerator, cement, showed a robust growth of 6.8 per cent in the second quarter of this fiscal, the weak global demand conditions were still a worrying factor.
''However, the recent surge in the Sensex and the continued soft interest rate regime should cheer up the Indian industry and help it further consolidate positive outlook,'' it said.
NCAER said the movement of the index of industrial production for the first seven months of the current fiscal pointed to sustained buoyancy in industrial production.
''The IIP-General has increased by 5.2 per cent, y-o-y basis, during the first half of this fiscal, about 3 percentage point higher than the growth recorded during the same period in 2001-02.
''The acceleration in industrial output becomes more noticeable when we consider the quarterly performance of 2002-03 over 2001-02,'' it said, adding that the rise in each of the six infrastructure sectors in the first half improved in comparison with the corresponding period last year.
NCAER said the manufacturing sector, which contributes majorly to the IIP-G, grew by 5.3 per cent, y-on-y basis, during the first half as compared to 2.5 per cent during the same period last year.
''Also, the growth trend in mining--from a decline to positive 6.5 per cent--and electricity was one of the positive gains, though there was a marginal rise in the latter at 3.4 per cent over last half's 3.2 per cent,'' the report said.
NCAER said the positive trend continued even in the month of October 2002, with the IIP-General growing by 6.2 per cent, manufacturing sector by 6.4 per cent, mining by 3.8 per cent and electricity by 7.4 per cent.
The report said infrastructure industries also recorded superlative performances, with steel and crude oil clocking positive growth of 9.3 per cent and 5.5 per cent in comparison to negative figures in the first half of last fiscal.
''Coal grew by 5.9 per cent to last fiscal's first half of 2.1 per cent, cement a massive 9.8 per cent (to 3.4 per cent in H1 2001-2002) and petro products 5.6 per cent (against 4.2 per cent),'' the report said.
NCAER said besides the surge in infrastructure, evidence of improvement in industrial activity was also seen in the growth of revenue earning of railway traffic.
''A growth of 7 per cent in the revenue earning of railway freight traffic during H1: 2002-03 further provides credence to the fact that the industrial recovery is well on its way.
''Although the growth in case of food grains traffic has been sharp during the first half of this fiscal due to drought relief measures, the traffic of cement and coal grew at the rate of nearly 5 per cent,'' it said.
NCAER said in the use-based classification of industrial output, the capital goods sector witnessed remarkable buoyancy.
''The sector posted a double-digit growth for the fifth consecutive month in October 2002. The growth for the H1: 2002-03 is an impressive 8.9 per cent compared to a negative growth of 6.8 per cent in H1: 2001-02.''
The report attributed the growth of capital goods primarily to extremely high growth in PVC/PICL, machine tools, diesel engine, hydraulic machine/cylinder, wheels and axles complete set, auto rickshaws, switchgear (circuit breakers) and commercial vehicles.
''However, goods like shipbuilding and repair, broad gauge covered wagons, medical and surgical instrument, cutting tools and industrial machinery registered negative growth. Thus it appears that the buoyancy observed in the capital goods sector is still narrowly based,'' it added.
The basic goods sector also registered a growth of 5 per cent in October 2002 after witnessing a paltry growth of 1.6 per cent during September 2002. The cumulative growth of this sector during the first half of this fiscal stood at 4.8 per cent, 2.7 percentage point higher than the growth recorded during the same period last fiscal.
The report said though production in intermediate goods sector increased by 4.1 per cent during October 2002, its performance was well below the performance of both basic and capital goods sector in the first half of this fiscal recording a growth of a mere 1.8 per cent.
''This poor performance of the intermediate goods sector is largely an outcome of the negative growth experienced by its major segments such as cotton yarn, PVC pipes and tubes, particleboard and plywood commercial, with the exception of filament yarn,'' it said.
NCAER said the production of consumer goods in H1: 2002-03 increased by 8 per cent as opposed to 5.4 per cent in H1: 2001-02.
However, it added that the strong growth at the aggregate level was not uniform within the sector. The break up of the consumer goods sector into consumer durables and consumer non-durables reveals a sharp distinction in performance, it added.
''While the consumer non-durables notched up an impressive growth of 14 per cent during H1: 2002-03, the consumer durables experienced a negative growth of 6.5 per cent for the same period.
NCAER said the performance of the industry at two digit level of classification revealed that 13 out of 17 industries experienced positive growth in H1: 2002-03 as compared to 12 during the same period in H1: 2001-02.
''Although the bad run experienced by wood and wood products, including furniture and fixtures as also cotton textiles, during the first half of last fiscal continued even in the current fiscal, textile products (including wearing apparel), jute and metal products reversed their performance in H1: 2002-03, registering a growth of 16.2 per cent, 6.1 per cent and 5.3 per cent respectively.''
On the prospects, NCAER said, ''It has been observed in the past that buoyancy in agricultural sector in the preceding year and improved export performance have a significant bearing on the performance of industrial sector.
''If past is an indicator, then the likely impact of the drop in this year's kharif production would only be felt in the coming months and quarters,'' it said.
Also, a sluggish global economic outlook, with slower growth in the next 12 months than previously anticipated, pose added difficulties for the Indian industry, NCAER said, adding that the continued strain on fiscal health of Centre as well as States due to drought relief measures and non-revival of investment activity were a serious threat to the sustained recovery of industrial sector.
Among the positives, it listed the normal rabi season for agriculture, signs of reduced policy uncertainty with divestment in oil public sector units back on track, a soft interest rate regime, comfortable forex reserves, strong performance of capital goods sector and finally the business optimism seen in the three successive surveys of Business Expectations of NCAER.