Key industries continue to suffer following demand slowdown: Study
Updated: Nov 22, 2013 01:40:45pm
New Delhi, Nov 22 (KNN) Green shoots in the Indian economy are visible, at best in patches and cannot be seen as well-spread unless pick-up in investment cycle is evident, said a study.
“Unless we see clear signs of revival in the capital goods sector, the investment in manufacturing cannot be visible. The sector which reflects the state of investment in the key manufacturing industries continues to suffer- an indication of lack of appetite among the industry in the face of demand slowdown,” the study – ‘Where Are the Green Shoots’ conducted by industry body ASSOCHAM noted.
The spread-sheet analysis of the industrial data suggests that near two dozen industry segments have reported negative trend in production in the first half of the current financial year and unless a reversal is seen in demand, the investment cycle is difficult to revive.
For the April-September period of the FY 2013-14, the capital goods sector showed a de-growth of 0.7 percent. What is worse – the segment reported a huge 6.8 per cent negative growth in September. It is true that the situation was extremely bad in the first half of FY 2012-13 and in September 2012 when the capital goods had posted a de-growth of 14.2 per cent and 13.3 per cent respectively.
“We have seen production in capital goods slip in first half of 2013-14 further from the low base of the same period in the previous year- the continuation of de-growth over de-growth is a great cause of concern,” the paper noted.
The consecutive negative trend – both in the first half of this year and in the previous fiscal also shows that there is a big surplus capacity lying in the sector and it would be quite a while before fresh investment can be expected since even if a positive territory is found, it has to first absorb the surplus capacity with the industry before a demand-driven investment is expected, it said.
Further, the study said return to high growth along with the feel-good factor is very important at this point of time so that consumers retain confidence which, in turn, would prompt fresh investment and resumption of stalled projects.
“What is even more worrying are the signals that the government may cut its expenditure to rein in fiscal deficit. While controlling fiscal deficit is a must, drastic cut in government expenditure would lead to further squeezing of business opportunities since the government is among the largest purchaser of goods and services,” it said.
The best course for the government would be to go ahead with the planned expenditure and cut on wasteful non-plan expenses so that the government budget squeeze does not affect the economic sentiment.
“What is causing concern is that several employment generating industries like furniture making have shown a rapid drop (minus 14 percent) along with fabricated metal products,” the ASSOCHAM study noted.
While some industries like apparel have shown smart recovery, the decline in others is so sharp that the overall sentiment in the business circles, particularly in the labour-oriented small scale, remains subdued. (KNN/SD)
“Unless we see clear signs of revival in the capital goods sector, the investment in manufacturing cannot be visible. The sector which reflects the state of investment in the key manufacturing industries continues to suffer- an indication of lack of appetite among the industry in the face of demand slowdown,” the study – ‘Where Are the Green Shoots’ conducted by industry body ASSOCHAM noted.
The spread-sheet analysis of the industrial data suggests that near two dozen industry segments have reported negative trend in production in the first half of the current financial year and unless a reversal is seen in demand, the investment cycle is difficult to revive.
For the April-September period of the FY 2013-14, the capital goods sector showed a de-growth of 0.7 percent. What is worse – the segment reported a huge 6.8 per cent negative growth in September. It is true that the situation was extremely bad in the first half of FY 2012-13 and in September 2012 when the capital goods had posted a de-growth of 14.2 per cent and 13.3 per cent respectively.
“We have seen production in capital goods slip in first half of 2013-14 further from the low base of the same period in the previous year- the continuation of de-growth over de-growth is a great cause of concern,” the paper noted.
The consecutive negative trend – both in the first half of this year and in the previous fiscal also shows that there is a big surplus capacity lying in the sector and it would be quite a while before fresh investment can be expected since even if a positive territory is found, it has to first absorb the surplus capacity with the industry before a demand-driven investment is expected, it said.
Further, the study said return to high growth along with the feel-good factor is very important at this point of time so that consumers retain confidence which, in turn, would prompt fresh investment and resumption of stalled projects.
“What is even more worrying are the signals that the government may cut its expenditure to rein in fiscal deficit. While controlling fiscal deficit is a must, drastic cut in government expenditure would lead to further squeezing of business opportunities since the government is among the largest purchaser of goods and services,” it said.
The best course for the government would be to go ahead with the planned expenditure and cut on wasteful non-plan expenses so that the government budget squeeze does not affect the economic sentiment.
“What is causing concern is that several employment generating industries like furniture making have shown a rapid drop (minus 14 percent) along with fabricated metal products,” the ASSOCHAM study noted.
While some industries like apparel have shown smart recovery, the decline in others is so sharp that the overall sentiment in the business circles, particularly in the labour-oriented small scale, remains subdued. (KNN/SD)
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