The growth in IIP reflects a clear dichotomy between export-led growth and domestic slowdown, points out SBI Research
IIP growth at 0.1% for January 2014 was a pleasant surprise, even as CPI (Consumer Price Index) declined to 8.11% in February 2014 largely in consonance with street expectations.
The growth in IIP reflects a clear dichotomy between export-led growth and domestic slowdown, points out SBI Research. For example, at 2-digit level, positive sectors are textiles, apparels and chemicals and finished leather products, carry combined weightage of 19% in IIP index, appear to have benefited from rupee depreciation as these are export oriented.
However, on the downside, sectors like food product & beverages, communications and motor vehicles with a combined weightage at 12.3% are witnessing a significant slowdown. Also, going by CSO projections, manufacturing sector need to log in a growth rate at 1.1% in Feb-Mar 2014, which looks difficult, given that export growth is now slowing down.
In the table below, we give the IIP and components growth:
In the graph below, we plot the moving average growth in IIP:
In conclusion, CARE Research analysis is as follows: Weak domestic demand, higher raw material costs on account of high inflation, interest rate hikes; supply side bottlenecks, low business sentiment and slow movement in implementation of reforms have impaired the performance resulting in weak industrial activity. It is quite evident, that the persistent volatility in the industrial output is likely to delay the expected revival in growth. Hence, achievement of the projected economic growth of 4.9% appears to be less optimistic. Hence, the biggest challenge is to revive manufacturing for overall growth to pick up.
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