Industry, investments 'may not improve before Q3'

C Rangarajan, chairman, PMEAC, said industry would start doing better only from the second half of the year

High interest rates and low investor sentiment led to a contraction in industries (excluding construction) by 0.86 per cent in the first quarter of 2013-14 against a growth of two per cent in the previous quarter, according to data released by the Central Statistics Office on Friday.

In the same period last year, industries had fallen 0.2 per cent. The mining sector decline 2.8 per cent against a contraction of 3.1 per cent in the previous quarter. In April-June 2012, the sector grew 0.4 per cent.

The electricity segment of industries was the only hope but it also failed to get ignited much. The sector, along with gas and water supply, rose 3.7 per cent in April-June of 2013-14 against 6.2 per cent in the same period of 2012-13. In the fourth quarter of 2012-13, the segment expanded 2.8 per cent.

Experts say this was expected, as reflected in the Index of Industrial Production numbers. "The picture was known before. It has not surprised us", said Madan Sabnavis, chief economist, CARE ratings, "Nothing much is happening at the ground level in industries. However, due to the festive season, there could be some pick-up in consumer goods in August and September."

Private Final Consumption Expenditure, which reflects demand in the economy, grew at a sluggish pace of 1.62 per cent in the first quarter against 3.8 per cent growth in the previous quarter.

On the supply front, Gross Fixed Capital Formation, proxy for the investment rate, contracted 1.18 per cent. "This shows that overall investment is coming down as the manufacturing sector has absolutely languished," said Anis Chakravarty, senior director of Deloitte India. C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said industry would start doing better only from the second half of the year. "I do not see much improvement in the second quarter, too. But in the second half, it can revive," he said.