Industrial output contracts 1.2% in February

High Base effect and subdued external demand impact IIP.

New Delhi, April 9 Industrial output declined by 1.2 per cent year-on-year in February, largely due to high base effect and subdued external demand. Industrial output had recorded growth of 9.5 per cent in February 2008.

Official data released today showed that industrial output grew 2.8 per cent in April-February 2009, lower than the 8.8 per cent growth recorded in the same period during previous year.

The Economic Affairs Secretary, Dr Ashok Chawla, said that the IIP growth performance was not as such a source of disappointment. He pointed out that it was mainly sectors with high export linkage that bore the brunt of the external demand slowdown and thereby impacted industrial output.

According to Nomura Securities, although industrial output contracted in February on a year-on-year basis, the sequential momentum has gathered. While external demand continues to be weak, there are tentative signs of better domestic demand.

Within industrial production, manufacturing output fell 1.4 per cent year-on-year in February. This has been led by decline in metal products (-31.3 per cent), food (-28.1 per cent), wood (-16.5 per cent), leather (-14.8 per cent) and cotton textiles (-12.1 per cent).

Sectors that posted strong output growth included machinery and equipment (15.6 per cent), other manufacturing (12.6 per cent) and the beverages and tobacco segment (6.3 per cent).

The mining sector output declined 1.6 per cent and the electricity sector output grew 0.7 per cent for the month under review. While capital goods output grew 10.4 per cent, consumer durables output rose 5.7 per cent. However, consumer non-durables declined 5.5 per cent in February 2009. Official sources attributed this decline to fall in sugar output.

“We judge that firms are drawing down inventories, which should pave the way for production increases. We expect industrial output growth to average 2.6 per cent year-on-year in FY09 and 4.2 per cent in FY10,” Nomura Securities said.