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CMIE lowers industrial growth forecast to 3%

Rakesh P Sharma in Mumbai

The failure of the rains in the first two months of the monsoon has lowered the prospects of the industrial recovery being sustained, according to the Mumbai-based Centre for Monitoring Indian Economy.

In the first quarter of the current financial year, industry had started showing some signs of recovery, mainly on account of the robust rabi crop. This was reflected in the growth in production and profits in the first quarter.

CMIE in its "Indian Industry - A Monthly Review for August 2002", said: "The failure of the rains in the first two months of the monsoon season has warranted a lowering of our forecast of growth of the index of industrial production for 2002-2003 to 3 per cent from 3.5 per cent earlier."

Hema Rajshekhar, head, industry, at CMIE, said, "We expect the current year to be the second consecutive year of slowdown in industrial growth." The IIP grew by a mere 2.8 per cent in 2001-2002 versus 5.1 per cent in the preceding year.

The poor and erratic southwest monsoon is expected to severely affect agricultural production. Sowing has already suffered and yields are expected to fall substantially. This loss cannot be made good even if the rains improve in the remaining weeks of the monsoon season.

CMIE estimates that the groundnut seed output will fall by 25 per cent in Andhra Pradesh and Karnataka although output in Gujarat could grow by 10 per cent.

Soyabean production is expected to fall sharply by over 50 per cent as Madhya Pradesh has received scant rainfall.

Adds Rajshekhar: "Since about 70 per cent of the population in rural and semi-urban areas depend upon agriculture and allied activities for a living, the aggregate purchasing power, and thus demand, will be depressed. In spite of a bumper agricultural crop in 2001-2002, aggregate demand did not rise significantly."

Aggregate demand is bound to be affected once again this year. Sectors such as food products, consumer goods, textiles, garments and two-wheelers would be hit. CMIE expects the manufacturing sector to grow by a modest 3 per cent in the current year versus 2.8 per cent in 2001-2002.

The index of food products is expected to fall by 1 per cent, on top of the 1.7 per cent decline in the previous year. This is because the production of sugar, tea and edible oils is expected to fall.

The demand for petroleum products is expected to slow down, as it would not be possible to sustain the high growth of the preceding two years, which largely reflected a substantial increase in capacity.

The performance of the cement, steel, aluminium and automobiles sectors is expected to be good. Cement demand is expected to emerge largely from the infrastructure and housing segment. The steel sector is poised to fare well on account of higher steel prices, following the rise in international prices and domestic demand for steel coming from sectors like consumer durables and automobiles.

Aluminium production could grow, too, though on last year's lower base. Production was affected last year by the shutdown of a Balco plant.

Commercial vehicle sales have recovered and the segment is expected to fare well in the current year. However, even these segments could face a slowdown in the second half of the current year.

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