Millennium Post

Fiscal deficit-wary Govt may cut spending, fears industry

The study comes days after Finance Minister P Chidambaram said the green shoots are visible and measures taken by the government will help the economy achieve the potential growth rate of 8 per cent.

'The spread-sheet analysis of industrial data suggests that two dozen industry segments have reported negative trend in production in the first half of the current fiscal. Unless a reversal is seen in demand, it is difficult to revive the investment cycle,' Assocham secretary general D S Rawat said on the study.

Unless we see clear signs of revival in the capital goods sector, the investment in manufacturing cannot be visible, the study pointed out. The capital goods sector reflects the state of investment in the key manufacturing industries, and it continues to suffer —  an indication of the lack of appetite among the industry in the face of demand slowdown, it said.

The capital goods sector showed a de-growth of 0.7 per cent in the April-September period of 2013-14. Moreover, the segment reported 6.8 per cent negative growth in September, the survey said.

The situation was bad even in the previous financial year, as in the first half of 2012-13 and in September 2012 the capital goods had posted a de-growth of 14.2 per cent and 13.3 per cent respectively, it said.

The continuation of de-growth over de-growth is a great cause of concern, the paper pointed out, adding that the consecutive negative trend also shows that there is huge surplus capacity lying in the sector.

'It would take quite a while before fresh investment can be expected, as even if a positive territory is found, it has to first absorb the surplus capacity with the industry before a demand-driven investment is expected,' Rawat said.

Leave alone green shoots, industries like hot rolled steel and sugar machinery produced 58 per cent and 39 per cent less in September 2013 than the same month last year, the study said.

Besides, colour TV sets sold 30 per cent less while commercial vehicles were down 28.5 per cent during the review period. Return to high growth along with the feel-good factor is very important at this point of time so that consumers retain confidence which, in turn, would prompt fresh investment and resumption of stalled projects, according to the study.

'What is even more worrying are the signals that the government may cut its expenditure to rein in fiscal deficit. While controlling fiscal deficit is a must, drastic cut in government expenditure would lead to further squeezing of business opportunities since the government is among the largest purchaser of goods and services,' the study said.
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