Recovery in industrial growth unlikely in FY14, say analysts

Industrial production is unlikely to show a revival in the current financial year, economists feel.

The Index of Industrial Production (IIP) dipped 2.1 per cent in November, against a contraction of one per cent a year before. In October, factory output had declined 1.6 per cent.

"This has happened despite the festive season…In the next four months, a revival in industries is unlikely to happen… Even positive numbers would be magical," said Madan Sabnavis, chief economist at CARE Ratings.

The contraction in production was mainly led by a decline in output of manufacturing, which has the largest share in industrial production. This sector contracted 3.5 per cent in November against 0.8 per cent in the same month last year. Mining output remained sluggish, showing one per cent growth against 5.5 per cent a year before. The only positive factor in the index was the electricity sector, which showed growth of 6.3 per cent in November against 2.4 per cent in November 2012.

Experts said till issues were resolved in mining and manufacturing, an uptick was unlikely. "IIP will continue to be like this till some ground-level action takes place," said Anis Chakravarty, senior director at Deloitte India.

Inflation has led to a continued decline in capital goods production. The segment contracted a massive 21.5 per cent in November against 1.1 per cent growth a year before. "High inflation is keeping consumers away from purchasing any durables. They are investing money in the form of bank deposits," said Sabnavis.

Experts say issues in the small and medium enterprises sector also need tackling. "These sectors face high borrowing cost and supply chain issues and until these are addressed, a pick-up is difficult," said Chakravarty.

The production of capital and basic goods was almost muted. Capital goods expanded 0.3 per cent in November and basic goods by 0.7 per cent. The growth of intermediate products was 3.3 per cent, against 1.4 per cent contraction in the same month last year.