Slow growth, price rise but some Diwali cheer
Factories are producing less, exports are shrinking and prices continue to rise sharply. It is a sombre Diwali as consumers struggle with less in their pockets to fund their aspirations - but there are a few silver linings. HT reports. Dynamics of growthbusiness Updated: Nov 13, 2012 01:14 IST
Factories are producing less, exports are shrinking and prices continue to rise sharply. It is a sombre Diwali as consumers struggle with less in their pockets to fund their aspirations - but there are a few silver linings.
Data released on Monday showed that India's factory output contracted 0.4% in September, compared with increases of 2% in August and 2.5% in September 2011. Exports fell 1.6% in October - the sixth successive monthly shrinkage - as struggling economies in the US and Europe cut back on orders.
Elevated prices - retail inflation was 9.75% in October - have hurt family budgets hard, especially at a time when thousands of factories and firms in India, squeezed by costly inputs and borrowing costs, have offered meagre salary hikes and are holding back expansion and hiring.
"The cost of living is increasing and my salary hasn't kept up, so I have postponed a decision to buy electronic goods," said S Jagannathan, a private sector employee from Chennai.
The production of consumer durables fell 1.7%, reflecting weak demand for goods such as televisions and refrigerators.
Capital goods output, a proxy for investment activity, also contracted 12.2% during September - a clear sign that firms were putting off capacity expansion plans.
But all is not lost.
This, for instance, could be a great time to buy an automobile as deep discounts are driving handsome sales, while the country's darling software and information technology sector is eyeing double-digit growth that promises thousands of potential new jobs for white-collar workers.
In his Diwali message this year, Prime Minister Manmohan Singh, who has pledged to revive the economy, expressed the hope that the festival of lights this year would mark "the beginning of a new phase of optimism" for every Indian.
For this hope to be realised, plenty needs to be done.
"It is imperative that investments start to pick up for the economic cycle to kick in. Demand creation has to be the priority for the Government and RBI," said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII).
To tame prices, the Reserve Bank of India (RBI) has so far resisted growing demand to cut interest rates, but it appears to have hurt spending on consumer goods that are bought on loans from finance companies.
"Sales during Diwali are not very encouraging. Overall sales, excluding very few categories, have fallen by over 20-25%," said Alok Bhardwaj, president Manufacturers' Association for Information Technology (MAIT) and senior vice president, Canon India.
A focus on exports and a flurry of discounts have helped two sectors defy the gloom, to some extent.
The IT services industry is however expected to grow 11% this fiscal with software exports forecast to cross $75 billion, according to National Association of Software and Services Companies (NASSCOM), an IT industry association.
"The industry performance for the past half year has demonstrated the sector's ability to innovate and deliver in enabling growth of customer businesses in challenging times," said N Chandrasekharan, chairman NASSCOM and CEO and MD of Tata Consultancy Services (TCS), India's largest software services firm.
And car sales surged to record highs on Dhanteras on Sunday.
Maruti Suzuki, still recovering from the scars of a month-long labour strike in July, sold 10,000 cars, a 20% rise over last year. Likewise, Honda sold 50,000 two-wheelers, a sharp jump over last year, while Hero MotoCorp delivered 100,000 two-wheelers on Sunday.
"We hope these positive sentiments would continue after the festival season, Rakesh Srivastava, VP, marketing and sales, Hyundai Motor India Limited (HMIL).