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Recession talk looms in manufacturing

India’s overall economy is growing slow but better than most of the world. But, is the manufacturing sector, the backbone of urban growth for long, kissing the dreaded R word?

business Updated: Mar 12, 2009 21:21 IST
HT Correspondent

India’s overall economy is growing slow but better than most of the world. But, is the manufacturing sector, the backbone of urban growth for long, kissing the dreaded R word?

Industrial output contracted for the second consecutive month by 0.5 per cent in January, raising concerns that the manufacturing sector could slip into a “recession” – which in pure technical terms is defined to happen when any sector registers negative growth for two consecutive quarters in a year.

Within the industrial sector, the manufacturing sector contracted by 0.8 per cent. It had contracted by 0.2 per cent during the third quarter of the current financial year and by 0.6 per cent in December.

Analysts do not see an early turnaround and expect the slump right through to the April-June first quarter of 2009-10.
“Depressed global demand and continued inventory de-stocking suggests that a meaningful recovery is not likely until the second half of the next fiscal year,” said Sonal Varma of Nomura Financial Advisory and Securities.

If the current trend continues, the manufacturing sector, of which around 40 per cent is export driven, could technically be termed as being in “recession.”

The current manufacturing slump is significantly driven by the decline in exports hit by shrinking world demand which has hit handicrafts, gems and jewellery, leather and textile exports.

This is reflected sharp contraction in many of the country’s export driven sectors such as leather and jute products whose output growth fell by 9.8 and 8.6 per cent respectively.

“The negative industrial output growth highlights the subdued pace of economic activity. Fall in global and domestic demand have taken a toll on industrial production during the last few months,” said Yashika Singh of economic information firm Dun and Bradstreet.

The sequential momentum of industrial output has remained weak. It contracted by 0.6 per cent in December. Industrial growth between April and January — the first 10 months of the current fiscal year – has slowed to 3 per cent from 8.7 per cent from a year earlier.

Several analysts have pegged at the full-year industrial output growth at less 3 per cent.