October factory output may dip

With macroeconomic indicators like export growth and excise duty collections registering a sharp fall, India’s factory output in October is expected to grow marginally or register a dip for the first time since 1994.

The closure of factories and cutback in production during October as well as the high base in the month may bring down the index of industrial production (IIP). The index had expanded 12.2 per cent in October last year. “Our initial estimates suggest that IIP growth in October will shrink or will be marginally in the positive territory. In November, the prospects look worse,” said a Mumbai-based economist with a leading bank, who did not wish to be quoted.

The index expanded at its slowest pace of 1.4 per cent in August this year, the worst performance since 1998. Finance Minister P Chidambaram had expressed doubts over the data and said the latest numbers appeared to be out of line.

However, in September 2008, IIP grew by 4.8 per cent compared to 7 per cent in the same month last year, led by the consumer durables sector, which benefited from the boost in demand during the festival season.

“We are waiting for some data on coal production to arrive at a forecast. But it seems that IIP growth at the most would be in the rage of 0.5 to 1 per cent in October,” another Mumbai-based economist said. “Also, going by initial reports, IIP growth may shrink in November. In fact, we could see one or two months of ‘de-growth’ this year.”

Key macroeconomic data like export growth and excise duty collections point to a significant slowdown in growth rate. According to initial estimates of the Directorate General of Foreign Trade, exports shrunk 15 per cent in October.

In addition, the data released by the finance ministry show that excise duty collections declined 8.7 per cent in October as against 7.5 per cent growth seen in the corresponding month last year. Excise duty is a production tax, levied on goods manufactured in the country. Decline in collections of this tax indicates that lesser volume of goods were produced in that month.

According to credit-rating agency Crisil’s economist DK Joshi, IIP is unlikely to shrink in October. “But some economic data points towards a weakening IIP growth in October, lower than the level seen in the previous month. Though we have not made a forecast till now, it seems it would not be more than 3 per cent,” he said.

According to feedback received by industry bodies like the Confederation of Indian Industry, October this year may not see a large impact in terms of production cuts, but November prospects look bleak. Several commercial vehicle companies are learnt to have cut production during the month.

Meanwhile, the Department of Industrial Policy and Promotion has authorised the Centre for Monitoring Indian Economy to collect data for the new series of IIP, which is likely to be released in the near future.