IIP dips for first time in 15 years

India’s industrial production dipped for the first time in 15 years to -0.4 per cent in October this year, as global economic crisis is adversely impacting domestic demand and exports.

Experts and industry lobby groups are now calling for stronger fiscal and monetary measures after the latest index of industrial production (IIP) fell unexpectedly. Economists contacted by Business Standard predicted a lower IIP growth rate in the range of 0-3 per cent, but none expected it to slip into negative terrain.

The dip in manufacturing, which constitute nearly 80 per cent weight in IIP, is the main reason for decline in factory output number. Manufacturing posted -1.2 per cent growth in October 2008 as compared to 13.8 per cent growth in the same month last year. However, the other two categories - mining and electricity - grew at 2.8 per cent and 4.4 per cent, respectively.

The government, which announced a fiscal stimulus package last Sunday, had factored in contraction in industrial output and is expecting further dip in November too. “The government has taken note of the slowdown in IIP, which appears to be continuing in November as well. This is a matter of concern. The economic package was released by the government in this backdrop,” said Commerce Secretary Gopal K Pillai.

With three leading indicators - export growth, automobile sales and credit off-take - showing sharp decline in their latest numbers, experts say the industrial production would continue to be sluggish.

Exports fell by 12 per cent in October 2008, and preliminary estimates done by commerce ministry indicate further dip. Automobile sales in November fell by 19 per cent, and non-food credit off, too, declined sharply.

“In the quarter ending December, the IIP would remain in the negative zone. This is because the entire impact of the credit crunch will be seen in these months. Incremental non-food credit growth is seen correcting rapidly,” said Shubhada Rao, chief economist with Yes Bank, a private sector bank.

In terms of major industries, basic chemicals and chemical products posted a production dip of 5.5 per cent, leather and related products dipped 18.1 per cent, transport equipment and parts dipped 6.1 per cent. Textiles dipped textiles and apparels dipped 4.6 per cent.

In terms of use-based classification, except for two categories - basic and capital goods - the remaining four categories- intermediate, consumer, consumer durables and consumer non-durables- were in the negative territory.