Industry shrinks again

Industrial output plunges after 2 months of recovery

In a bad set of economic numbers, industrial production contracted by 1.9 per cent in February and exports declined by 3.15 per cent in March. This shows the daunting challenge which the next government faces in reviving the economy.

Industrial production growth slowed down mainly because of manufacturing sector, whose output shrank by 3.7 per cent in February.

The manufacturing sector constitutes around 75 per cent of the index of industrial production. The fall is highest since October 2011, said Ficci.

Capital goods, which is usually seen as an indicator of investments in the economy shrank by 17.4 per cent. Consumer goods also fell by 4.5 per cent in February — with both durables and non durables shrinking.

“The 1.9 per cent con- traction in industrial activity during February 2014 is a negative surprise as against market expectation of slight growth. Capital as well as consumer goods have dragged the overall index substantially by about 400 basis points,” said Bhupali Gursale, economist, Angel Broking. Industrial production growth slowed down due to manufacturing sector whose output shrank by 3.7% in Feb

In March this year, exports shrank for second straight month. The trade deficit hit a fivemonth high in March. The trade deficit widened to $10.5 billion from $8.1 billion last month.

For fiscal 2014, trade deficit stood at $138.6 billion, over 25 per cent lower than the previous year. “The primary factors behind this reduction were decline in gold imports due to restrictions imposed since July last year and lower imports of investment and consumption goods, due to weak domestic growth,” said rating agency Crisil in a statement.

Gold imports are estimated to have almost halved this year as the import duty on gold was hiked to 10 per cent and importers were asked to reserve one-fifth of all imports for exports, it said.

Imports, which had been contracting in double-digits (average 16.6 per cent) for the past 6 months, fell by only 2.1 per cent in March. Exports for 2013-14 grew by 3.98 per cent to $312.36 billion, falling short of the annual target by about $13 billion.

The government had set a export target of $325 billion for 2013-14.