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March IIP data may show 1% fall: Moody's

Source: PTI
May 07, 2009 18:44 IST
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Industrial recovery may remain elusive with factory production likely to contract again in March by nearly one per cent due to slackening demand and weak export orders, Moody's said.

"I'm expecting a fall of about one per cent year-on-year in March," Moody's economist Sherman Chan told PTI.

She further said that external demand, which has slumped in recent months, will at best stabilise by the year-end.

"A strong recovery in outbound shipments is not expected before 2010, meaning export-oriented manufacturers face sluggish business conditions for some time yet," she added.

Industrial production had contracted for the first time in 15 years in October, and then again in December.

According to the provisional figures, it could be the fourth month in a row and fifth month in the last fiscal that industrial growth may turn negative. However, after revision the provisional figures for October and January, which were negative, have turned positive.

The industrial production data for March are scheduled to be released next week.

In February, industrial production contracted by 1.2 per cent compared to 9.5 per cent recorded a year-ago.

In a statement, Moody's said India may report yet another month of lacklustre manufacturing performance in March.

"Industrial output was down mildly in three of the latest five months for which data are available. This may imply that India's industrial sector is in better shape than those of its Asian peers, many of which have posted double-digit declines in recent months," it said.

However, the clear downward trend in India's output growth, which began early in 2007, is still a worry, it said.

To prop up the slowing economy, the government came out with three stimulus packages in December, January and in the interim budget, cutting excise duties and providing incentives to various sectors.

However, Moody's said Indian manufacturers are still experiencing a challenging time.

Production in India has been gradually losing steam, in contrast to the relatively sudden sharp lunges experienced by other Asian economies following the US subprime crisis and the subsequent global downturn, it said.

Meanwhile, ABN Amro's parameter, called Purchasing Managers' Index, has sparked hopes that manufacturing is recovering in India, as the index for April returned to positive territory for the first time in six months.

On this, Moody's said, "The positive figure may have prevented market sentiment from worsening for now, but strong optimism is certainly not warranted as downside risks to India's industrial sector are still evident."

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