March Industrial Output Falls To Negative 3.5 Per Cent

DSIJ Intelligence / 11 May 2012

After growing by 4.1 per cent in the month of February 2012, the March Index of Industrial Production (IIP) has surprisingly contracted to negative 3.5 per cent.

After growing by 4.1 per cent in the month of February 2012, the March Index of Industrial Production (IIP) has surprisingly contracted to negative 3.5 per cent. This is far below the street estimates of 1.5 per cent and the March 2011 industrial activity growth of 9.5 per cent. On a cumulative basis, for the period between April-March 2011-12, IIP has grown at a mere 2.8 per cent as against 8.2 per cent in April-March 2010-11.

The markets reacted sharply to the dismal IIP numbers as the Sensex and the rupee extended their falls in the afternoon trades. At present the Sensex is down by 130 points at 16,296.14, down by 0.75 per cent while the rupee is quoting at Rs 53.6 a dollar.

Particulars

Index for Industrial Production

Mar-12

Mar-11

Feb-12

Mining

(1.30)

0.40

2.10

Manufacturing

(4.40)

11.00

4.00

Electricity

2.70

7.2

8.0

Basic Goods

1.10

6.40

7.50

Capital Goods

(21.30)

14.50

10.60

Intermediate Goods

(2.10)

3.00

(0.60)

Consumer Goods

0.70

13.20

(0.20)

Consumer Durables

0.20

14.90

(6.70)

Consumer Non-Durables

1.00

11.90

5.10

General

-3.5

9.4

4.1

These latest set of IIP numbers have come in as a real shocker and a massive disappointment as the manufacturing index, which contributes around 76 per cent to the total industrial output, contracted by 4.4 per cent in March 2012 as against an expansion of 11 per cent in the corresponding period of the previous year. The mining output too declined by 1.3 per cent for March 2012.

While reading into the details of the March 2012 IIP numbers, there are two major concerns that we at DSIJ would like to bring to the notice of our readers. One is that of the errant volatility prevalent in the capital goods sector. Industrial activity in capital goods has contracted massively by 21.3 per cent in March 2012, which paints a rather shoddy picture of the country’s overall economic activity. At the current rate of affairs it provides a fair indication that, going forward, industrial activity in the capital goods’ sector will continue to remain subdued.

Another disturbing fact is the subdued growth that the IIP numbers have reflected between April-March 2011-12 at 2.8 per cent vis-a-vis 8.2 per cent in April-March 2010-11. We believe that this would seriously impact the government’s very own GDP estimates made during the budget session of 2012-13. As against the 6.9 per cent estimated by the government, we believe GDP to grow lower than that mark and come at around 6.5 per cent.


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