IIP dips: Need we worry? - Views on News from Equitymaster

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IIP dips: Need we worry?

Feb 13, 2001

The recent figures released by the government indicate that industrial production and agricultural output remained sluggish but the services sector has performed well. This is reflected in the revenue realisation by the government through direct and indirect taxes. Centre’s gross tax revenues for 10 months of 2000-2001 have registered a lower than expected growth at 13.5% over 10 months of 1999-2000.The central government had expected a growth rate of 17.8%. The main culprits were customs and excise. The collection of custom duties during April to January 2001 was up by a mere 1.4% over the realisations for the same period for 2000. The targeted growth rate for customs was 12.0%. This figure is quite disappointing considering the fact that crude prices shot up and the there was a devaluation of the rupee. The growth figure for excise collection was 12.0% against a target of 16.8%.

Certainly these are not times to rejoice for the primary (agriculture) and secondary (industry) sectors. Agriculture has been hit with monsoon failure. As a result of this agricultural production is Was expected to grow by only around 0.9%. But for the half year 2002-2001 the sector has grown by 1.2%. However, the monsoon failure has indirectly affected the industrial sector.

The industry is facing problems on other fronts like weakness in demand, high oil prices and stiff global competition.

Earlier this year the government had scaled down the Industrial growth rate to 5.9% from estimated 8.2% for the year. During this period the index of manufacturing had been revised upward from 4.8% to 6.3%. The industrial growth for the first 9 months had fallen 5.7% compared to 6.4% for the corresponding period last year.

The major contributor was the manufacturing sector that slowed from 7% last year to 5.9% in the current year. For December the figures for manufacturing were disconcerting at 3.3% compared to 9.3% last year.

This is surprising considering the fact that in November the manufacturing sector had registered a strong growth of 6.5% compared to a low growth of 3.7% in the same month in the pervious year. The manufacturing sector for the first eight months had grown by 6.3% but its performance in December brought the figure down to 5.7%. The drop in growth rate could be attributed to the fact that four items radio receivers, photosensitized paper, chassis for HCVs (Heavy commercial vehicles) and engines have been dropped from the item basket for the manufacturing sector. These items were dropped, as they were prone to significant month-to-month variations. Or does this forebode an economic slowdown?

Growth figures 9 m FY99 9 m FY00
Industrial growth 6.4% 5.7%
Manufacturing 7.0% 5.9%
Electricity 7.7% 4.8%
Mining 0.5% 4.1%
Use Based IIP 2.2% 5.7%

The performance of the mining and use based IIP (index of industrial production) were heartening. Mining grew by a strong 4.1% compared to 0.5% last year. Use based IIP that includes basic good, capital goods, consumer goods, consumer durables and non-durables stood at 5.7% compared to 2.2% in last fiscal. However, the December figure for this segment was at 4.9% compared to 6.4% last year. The growth came from rubber, plastics, petroleum and coal products. While the products that showed negative growth were minerals, jute, basic metal and alloy. Mining is enjoying a strong growth rate thanks to its small base.

But it’s a different story for the services sector especially software sector that continues its robust growth. Ironic, is the fact that despite government’s reforms to boost the industrial sector it is the services sector that grew. Of course thanks to the sincere efforts we have a Dabhol at hand. But sometimes one does think is India’s Inc. business mix of 25.5% agriculture, 22.1% industry and 52.4% services a smart one?

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