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It’s not only the Reserve Bank of India but top corporate leaders are also worried that the industrial activity is slowing down in the country despite several steps taken by the Narendra Modi government. The main reasons for the slowdown, they say, are the high interest rates, lack of new orders from other companies and the global commodity crash.
“This has not come as a surprise to us and we have been talking to the Indian government on this. We do expect some positive changes in Calender 2016,” said promoter of a large infrastructure company asking not to be quoted. “The third quarter results shows marginal rise in profits for the Indian companies which have announced quarterly results so far.
As per the RBI statement today, in the first two months of December quarter, industrial activity slowed in relation to the preceding quarter. This mainly reflects weak investment demand with some deceleration of capital goods production. Stalled projects continue to remain high, and there is a decline in new investment intentions, perhaps on the back of low capacity utilization, the RBI said. The CMIE data for the month of December reveals that the slowdown persists for the entire December quarter. Cement companies like Ultratech have announced 7 per cent growth in revenues and higher profits mainly due to lower energy costs.
“We are standing on a Inflexion point in the economy today. We need growth in investment, capacity utilisation, job generation desperately now and for that internal demand has to grow. While containing inflation is important and it has been achieved substantially, now we expected that to bring in movement in industry , interest rate has to come down to kick start growth in demand . In my personal opinion, there was no better time than today to bring down the interest rate to create demand and growth. We all expected this to happen and sooner it happens the better,” said Prabal Banerjee, Head of International Finance of the Bajaj group.
But the Reserve Bank India says its industrial outlook survey suggests a modest expansion of activity likely in the March quarter. In January 2016, the manufacturing purchasing managers’ index (PMI) expanded to a four-month high due to resumption of output by firms affected by the December floods as well as on new domestic and export orders.
Lead indicators of the services sector are mixed. Construction activity is still tepid, as evidenced by weak growth in cement production, though the pick-up in road construction bodes well for future activity, especially if supported by construction in the major proposed industrial corridors. Railway freight growth is still weak, though it may reflect lower transport needs for inputs like coal, and competition from roadways. However, the services PMI rose to a ten-month high in December on improvement in new business orders and upbeat expectations.
