• OUTLOOK ARENA
  • VIEWS ON NEWS
  • FEBRUARY 13, 2001

IIP dips: Need we worry?

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.

Centreís 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 itís a different story for the services sector especially software sector that continues its robust growth. Ironic, is the fact that despite governmentís 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 Indiaís Inc. business mix of 25.5% agriculture, 22.1% industry and 52.4% services a smart one?

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407