Industrial production presents a mixed picture of sluggishness bottoming out as well as continuing for a little longer period, the Economic Survey 2012-13 said on Wednesday.
The industrial production measured on IIP made a smart recovery in October 2012 by showing a growth of 8.3 per cent, but entered into negative zone in the subsequent two months.
'Notwithstanding a pick-up in industrial growth observed in October 2012, there are mixed signals on whether the slowdown phase has bottomed out or the current sluggishness would persist a little longer,' the Survey said.
Overall industrial performance, continued to moderate from first quarter of 2011-12 with growth turning negative in first quarter of 2012-13, before improving to 2.1 per cent in October-December quarter of 2012-13.
The Survey, however, said there are at least two factors which suggest some optimism on the industrial front.
Firstly, data on frequency distribution of products/product groups, which constitute the IIP, indicate the number of products with a negative growth has declined from 182 in fourth quarter of 2011-12 to 160 in October-November, 2012.
The second factor showing optimism is the RBI's business expectation index, which recorded moderately positive growth in third quarter of 2012-13, after persistent negative growth for the previous six quarters.
The index tracks IIP growth fairly closely and this suggests a possible bottoming out of IIP growth moderation.
As per the survey, latest data indicate the growth of the sector could remain moderately positive at around 3 per cent for the current year.
Growth in IIP during April-December stood at 0.7 per cent against 3.7 per cent year-on-year. The survey said IIP growth remains vulnerable to several domestic factors and external shocks. The survey said: 'Infrastructure and energy constraints, decline in demand for India's exports, and fragile recovery in investment are the risk factors.'
Analysing the sector, it said besides weak investment climate, industrial sector performance remained subdued due to infrastructure bottlenecks.
Also, India has not improved significantly in terms of the ease of doing business and ranks very low in comparison to other industrial peers, it added.
It further said sourcing of finance at competitive costs is another major constraint for both the organised and the unorganised MSME enterprises.
The moderation in industrial growth, particularly in the manufacturing sector, is largely attributed to sluggish growth of investment, squeezed margins of corporate sector, deceleration in the rate of growth of credit flows and the fragile global economic recovery.
POOR PRIVATE INVESTMENT DRAGS DOWN INDIA INC’S SALES GROWTH RATE BY 60%
Amid declining private investment due to high interest rates and policy bottlenecks, India Inc saw sales growth dip by more than half to an average of 11.4 per cent during the second quarter of the current fiscal.
The drop in growth rate is subsequent to the corporate sector cutting investments by nearly Rs 90,000 crore in 2011-12 compared to 2010-11, according to the pre-Budget Economic Survey tabled by Finance Minister P Chidambaram in Parliament on Wednesday.
‘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 first quarter of 2010-11 to 11.4 per cent in second quarter of 2012-13,’ the survey said.
On the other hand, there was a significant increase in the rate of growth of interest expenditure with year-on-year growth peaking at 41.5 per cent in second quarter of 2011-12.
With the overall economic performance remaining sluggish, both public and private investment declined as a share of GDP.
Within private sector, investment by the private corporate sector registered a sharper decline.
‘Investment by the private corporate sector, at current prices, was lower by nearly Rs 90,000 crore in 2011-12 as compared to 2010-11. Consequently, the share of private corporate investment in total investment declined to 29.8 per cent in 2011-12 as against 36.1 per cent in 2010-11,’ it said.
However, the magnitude of decline was much larger in 2008-09, when private corporate investment fell by nearly Rs 2,25,000 crore compared to 2007-08.
Outlining the way forward, the survey said: ‘Policies to remove investment bottlenecks as well as structural reforms to encourage productive investment and its financing are essential, as is more accommodative monetary policy, as inflation abates.’
On the reasons for drop in private investments, it said this could be attributed to a number of factors, including increase in policy rates and lower demand for exports, mainly from advanced countries.
The industrial production measured on IIP made a smart recovery in October 2012 by showing a growth of 8.3 per cent, but entered into negative zone in the subsequent two months.
'Notwithstanding a pick-up in industrial growth observed in October 2012, there are mixed signals on whether the slowdown phase has bottomed out or the current sluggishness would persist a little longer,' the Survey said.
Overall industrial performance, continued to moderate from first quarter of 2011-12 with growth turning negative in first quarter of 2012-13, before improving to 2.1 per cent in October-December quarter of 2012-13.
The Survey, however, said there are at least two factors which suggest some optimism on the industrial front.
Firstly, data on frequency distribution of products/product groups, which constitute the IIP, indicate the number of products with a negative growth has declined from 182 in fourth quarter of 2011-12 to 160 in October-November, 2012.
The second factor showing optimism is the RBI's business expectation index, which recorded moderately positive growth in third quarter of 2012-13, after persistent negative growth for the previous six quarters.
The index tracks IIP growth fairly closely and this suggests a possible bottoming out of IIP growth moderation.
As per the survey, latest data indicate the growth of the sector could remain moderately positive at around 3 per cent for the current year.
Growth in IIP during April-December stood at 0.7 per cent against 3.7 per cent year-on-year. The survey said IIP growth remains vulnerable to several domestic factors and external shocks. The survey said: 'Infrastructure and energy constraints, decline in demand for India's exports, and fragile recovery in investment are the risk factors.'
Analysing the sector, it said besides weak investment climate, industrial sector performance remained subdued due to infrastructure bottlenecks.
Also, India has not improved significantly in terms of the ease of doing business and ranks very low in comparison to other industrial peers, it added.
It further said sourcing of finance at competitive costs is another major constraint for both the organised and the unorganised MSME enterprises.
The moderation in industrial growth, particularly in the manufacturing sector, is largely attributed to sluggish growth of investment, squeezed margins of corporate sector, deceleration in the rate of growth of credit flows and the fragile global economic recovery.
POOR PRIVATE INVESTMENT DRAGS DOWN INDIA INC’S SALES GROWTH RATE BY 60%
Amid declining private investment due to high interest rates and policy bottlenecks, India Inc saw sales growth dip by more than half to an average of 11.4 per cent during the second quarter of the current fiscal.
The drop in growth rate is subsequent to the corporate sector cutting investments by nearly Rs 90,000 crore in 2011-12 compared to 2010-11, according to the pre-Budget Economic Survey tabled by Finance Minister P Chidambaram in Parliament on Wednesday.
‘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 first quarter of 2010-11 to 11.4 per cent in second quarter of 2012-13,’ the survey said.
On the other hand, there was a significant increase in the rate of growth of interest expenditure with year-on-year growth peaking at 41.5 per cent in second quarter of 2011-12.
With the overall economic performance remaining sluggish, both public and private investment declined as a share of GDP.
Within private sector, investment by the private corporate sector registered a sharper decline.
‘Investment by the private corporate sector, at current prices, was lower by nearly Rs 90,000 crore in 2011-12 as compared to 2010-11. Consequently, the share of private corporate investment in total investment declined to 29.8 per cent in 2011-12 as against 36.1 per cent in 2010-11,’ it said.
However, the magnitude of decline was much larger in 2008-09, when private corporate investment fell by nearly Rs 2,25,000 crore compared to 2007-08.
Outlining the way forward, the survey said: ‘Policies to remove investment bottlenecks as well as structural reforms to encourage productive investment and its financing are essential, as is more accommodative monetary policy, as inflation abates.’
On the reasons for drop in private investments, it said this could be attributed to a number of factors, including increase in policy rates and lower demand for exports, mainly from advanced countries.