January 2014

CRISIL Economy First Cut
IIP: Industrial production slips again
Overview: Index of industrial production (IIP) fell by 2.1 per cent in November on a year-on-year basis, even sharper than October’s decline of 1.6 per cent. Despite a pick-up in core infrastructure industries such as mining and electricity, industrial production fell in November as the manufacturing sector contracted by 3.5 per cent compared to a year ago. Industrial growth is likely to remain weak for the rest of 2013-14 due to infrastructure and input constraints, and weak domestic demand. Robust export growth with rising global demand may however, provide some cushion to manufacturing production. Even though the mining ban has been lifted in Karnataka, revival in mining output will be slow as it will take time for firms to obtain relevant clearances and ramp up production. The Cabinet Committee on Investments has also been fast-tracking stalled projects; however, as most of these are infrastructure projects and have long gestation periods, the impact of these measures will not be felt until 2014-15. Core sectors such as mining and electricity rebounded in November from last month’s lows as higher coal production lifted mining output and raised power production. Electricity output grew by 6.3 per cent while mining expanded by 1.0 per cent in November. Mining sector has now contracted for three consecutive years (-2.2 per cent for April-November 2013) while manufacturing growth has completely collapsed (Figure 1). The only bright spot is electricity production, which has managed to sustain positive growth despite the sharp slowdown in the economy. Manufacturing sector’s dismal performance has been largely driven by domestic demand-dependant industries. With private consumption growth falling to 1.9 per cent in H1FY14 many of the domestic demand driven industries have seen a sustained weakness this year. In contrast, export-driven industries such as textiles, leather products, refined petroleum, chemicals and other transport equipment have shown strong growth (Figure 2), benefiting from a weak rupee and a gradual recovery in global demand. Between April-November, the rupee was around 10 per cent weaker than a year ago. Despite normal monsoons and its potential positive impact on rural demand, consumer non-durables output witnessed very weak growth (2.5 per cent) in November. Consumer durables output fell by 21.5 per cent due to high interest rates and slow income growth. Overall, consumer goods output fell by 8.7 per cent – its sharpest decline since 2009. Figure 1: Mining and manufacturing drag down IIP while electricity holds up in FY14
%, y-o-y 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0
FY11 FY12 FY13 FY14* FY11 FY12 FY13

IIP 8.2 5.2

Mining

Manufacturing 9.0

Electricity

5.6

5.4

-0.2 -2.2
FY14* FY11 FY12 FY13

-0.6

FY14*

FY11

FY12

FY13

FY14*

Note: FY14* corresponds to Apr-Nov; Source: Central Statistical Organisation, CRISIL Research

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CRISIL Economy First Cut - IIP

Figure 2: Domestic demand dependant industries drag down manufacturing in 2013-14
%, y-o-y 20.0 9.8 10.0

Table 1: Sectoral Growth (y-o-y %)
April - Nov

37% weight

63% weight
General Mining Manufacturing Electricity Basic Capital Intermediates Consumer Goods -Durables -Non durables

Weight 1,000.0 141.6 755.3 103.2 355.7 92.6 265.1 286.6 53.7 233.0

Nov-12 -1.0 -5.5 -0.8 2.4 1.1 -8.5 -1.4 -0.3 1.1 -1.5

Nov-13 -2.1 1.0 -3.5 6.3 0.7 0.3 3.3 -8.7 -21.5 2.5

FY13 0.9 -1.6 0.9 4.4 2.8 -11.3 1.8 3.6 5.2 2.3

FY14 -0.2 -2.2 -0.6 5.4 0.7 -0.1 2.7 -2.6 -12.6 6.3

Use-based classification
0.0

-10.0

-8.7 Apr May Jun Jul Aug Sep Oct Nov Apr May Jun Jul Aug Sep Oct Nov Export oriented* Domestic demand driven

Note: Export oriented industries include textiles, wearing apparel, leather, petroleum products, chemicals, other transport equipment; Domestic demand driven industries include all other manufacturing industries; Source: Central Statistical Organisation, CRISIL Research

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Vidya Mahambare Principal Economist, CRISIL Research
Email: vidya.mahambare@crisil.com Phone: +91 022 3342 8038

Neha Duggar Saraf Junior Economist, CRISIL Research
Email: neha.saraf@crisil.com Phone: +91 022 3342 8350

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Manasi Apte Manager, Communications and Brand Management Email: manasi.apte@crisil.com Phone: +91 22 334 21832 Jyoti Parmar Communications and Brand Management Email: jyoti.parmar@crisil.com Phone: +91 22 334 21835

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