Mfg growth to moderate in third quarter, shows survey

As manufacturing growth slowed in the first six months of this financial year, India Inc expects further moderation in the third quarter.

The number of sectors recording excellent and high growth are expected to decline and shift to the moderate growth category in October-December of 2011-12, says a CII-Ascon survey.

According to the Index of Industrial Production (IIP), manufacturing grew just 5.4 per cent in the first half ended September, compared to 8.8 per cent in the corresponding period of 2010-11. It grew a modest 2.1 per cent in September, compared to 6.9 per cent last year in the same month.

The survey report says manufacturing growth is expected to further moderate in October-December compared to the previous two quarters, mainly due to the Reserve Bank of India’s successive monetary tightening measures since March 2010. RBI raised policy rates 13 times to tame inflation. The move, critics say, has curbed growth instead of inflation, yet to come below nine per cent this calendar year.

Respondents in the survey pointed at various factors affecting growth in the manufacturing industry such as a rise in cost of raw material, high cost of credit, infrastructure bottlenecks, land acquisition issues, increasing oil prices, environmental regulations and procedures, competitiveness between India and China, import of second-hand machinery, duplication and sale of spurious products in the unorganised market, delay in implementation of the goods and services tax and non-uniformity of the tax structure.

“These issues need to be addressed at the earliest to help industry overcome the ongoing decelerating growth phase,” said Chandrajit Banerjee, director-general, CII.

Of the 103 sectors covered by the survey for the period April-September, the percentage of sectors reporting excellent growth (of more than 20 per cent) declined to 10.6 per cent compared to 35.7 per cent in April-September 2010. Those with high growth increased from 16.7 per cent in the first half of 2010 to 24.2 per cent in 2011. As many as 43.6 per cent of sectors have recorded a moderate growth rate, compared to 38.9 per cent in the previous period.

The responses for October–December 2011 showed that industry expected the sectors reporting excellent growth and high growth to fall further to seven per cent and 20 per cent, respectively. And, for sectors showing moderate growth to be up at 55.2 per cent.

Industry had expected sectors registering a negative growth rate to increase significantly to 21.3 per cent in the first half of 2011-12 from a low of 8.7 per cent earlier, is a clear sign of decelerating growth. In the third quarter, 17.6 per cent are estimated to fall in the negative growth category.

While the categories such as basic goods, intermediate goods, capital goods and consumer non-durables have fewer sectors in the excellent and high-growth brackets, consumer durables have a larger share of sectors growing at a high rate. The worst performing category is intermediate goods, which has the highest number of sectors expected to record negative growth.

Consumer durables, according to the IIP numbers, have shown high volatility, yet grew at 8.7 per cent in September, when the wider index grew by just 1.9 per cent. However in the first half, April-September, consumer durables have grown by just 5.2 per cent.