The Hindu Business Line : Negative show: Industrial output contracts in October

New Delhi, Dec. 12 The Index for Industrial Production (IIP) has posted a negative growth of (-)0.4 per cent in October as against a robust 12.2 per cent in the same month last year. However, between April and October the index had grown by 4.1 per cent compared with 9.9 per cent in the same period in 2007.

In August, the index had dipped to a growth of 1.3 per cent largely on account of a very poor growth in intermediates. It recovered in September to 4.8 per cent. Now, in October, it has actually turned negative.

The manufacturing sector recorded a decline in production in October to the tune of (-)1.2 per cent, particularly because of a huge plunge in exports. Manufacturing sector grew by 13.8 per cent in October last year.

Mining activities too slowed down substantially with a production growth of only 2.8 per cent as against 5.1 per cent as iron ore production came down following fall in Chinese demand after the Government imposed export tax on iron ore.

However, electricity generation was maintained more or less at last year’s level. Electricity generation improved marginally to 4.4 per cent compared with 4.2 per cent a year ago.

Industry groups

Among the various industry groups, paper & paper products and printing, publishing & allied industries posted the highest growth rate of 5.4 per cent (4.4 per cent in October 2007) followed by rubber, plastic, petroleum and coal products with 5.1 per cent growth (-2.9 per cent).

The industry group worst hit is leather and leather & fur products where production came down by (-)18.1 per cent compared to a fall of (-)3.6 per cent in the same month last year.

According to the Chief Statistician of India, Dr Pranab Sen, the dip is because of an aberration as the normal pattern of the IIP had been disturbed in 2007-08. Dr Sen expects the index behaviour to come back to the normal pattern from next month. He added that the IIP had grown by more than 12 per cent in October 2007 and that was an outlier performance and this high base was why the October 2008 index was down so much.

The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, said that “The figures are low; it’s a matter of concern.” But he pointed out that “whenever you get a little bit of bad news you shouldn’t immediately start restructuring the index. The fact is that all over the world there is a problem, we know there is a problem, we have taken corrective steps and let us see what impact they have. If more steps are needed we should take them, that’s the right approach and not immediately start questioning the index,” he said.

CII said that negative growth in manufacturing sector assumes additional seriousness as it poses a real threat to the employment prospects in the economy. Terming the IIP moving to the red as expected, the FICCI said that this is the right time to immediately release the second stimulus package. Assocham has also demanded that sectors such as manufacturing, real estate, steel, cement, textiles, leather and automotive components will have to be given bigger booster by the Government in order to boost production.

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