Employees may face lower or no salary hikes and fewer jobs. Manufacturing companies may have to tackle even lower sales and profits. And lower demand may hit services companies. For, the fears of a sustained industrial slowdown loom large over the country.
The Index for Industrial Production (IIP) — a tool to measure the country’s factory output — has contracted 1.2 per cent in February.
What’s more, as this follows a 0.2 per cent fall in the index for the quarter ended in December 2008, the current quarter ending in March assumes crucial importance. Declines in two consecutive quarters will mean the onset of recession.
The contraction can also lead to negative impacts for the government and the economy as a whole.
The government will have to face a higher fiscal deficit – the gap between total expenditure and total receipts, excluding borrowings – as a result of duty cuts, limiting its flexibility to spend its way out of the trouble.
The overall industrial output grew by a 2.8 per cent between April 2008 and February 2009, down from last year’s 8.8 per cent on a day when the inflation rate fell to 0.26 per cent, the lowest in 30 years.
However, there are rays of hope: a robust growth in capital goods (up 10.4 per cent) and consumer durables (5.7 per cent).
The drop in industrial production also mirrors the slide in exports, which contracted for the fifth successive month by 21.7 per cent in February.
“We have never said (the) manufacturing sector is back on a very robust growth track,” economic affairs secretary Ashok Chawla told reporters on Thursday. He said, “If you look at the IIP numbers, the impact continues to be on sectors where there is a very heavy export linkage, like cotton textiles, leather and mining.”
The government, however, said the stimulus packages were yet to have their impact and the IIP fall was on expected lines.