July 2012

CRISIL EconomyFirstCut
IIP: Though weak, industrial output growth turns positive
Overview: Industrial output, after registering negative growth for two consecutive months, grew at 2.4 per cent in May 2012. Manufacturing and electricity sector grew at 2.5 and 5.9 per cent respectively. However, mining sector contracted for the third consecutive month and registered a negative growth of 0.9 per cent. Core industries output continues to remain weak. Unless some policy reforms are undertaken quickly to revive growth, given the depressed domestic and global macro environment we expect industrial output growth to remain weak in the near term.
The industrial output grew at 2.4 per cent during May 2012. Industrial growth for the month of April 2012 was revised downwards to -0.9 per cent from 0.1 per cent reported earlier. For the first two month of FY13, industrial output growth now stands at 0.8 per cent over the corresponding period last fiscal. Manufacturing output grew at 2.5 per cent in May 2012. Manufacturing growth for the previous month was revised sharply downwards to -1.2 per cent from 0.1 per cent reported earlier. Mining and Quarrying continued to tread in the negative territory and contracted by 0.9 per cent in May 2012. Electricity output grew at 5.9 per cent as against 4.6 per cent in the previous month. At a 2-digit classification twelve out of the twenty two industries in the manufacturing sector showed positive growth in May 2012. The industry group Radio, TV and Communication Equipment and Apparatus showed the highest growth of 16.4 per cent, followed by Machinery and Equipment n.e.c. which showed a growth of 13.7 per cent. On the downside, Electric Machinery and apparatus n.e.c. witnessed a negative growth of 28.6 per cent followed by 14.9 per cent in Furniture; Manufacturing n.e.c.. Output of intermediate goods grew by 2.7 per cent in May 2012 after contracting by 1.6 and 1.7 per cent in the previous two months. Consumer goods grew at 4.3 per cent in May 2012. This is the fastest growth witnessed in 2012.

April- May Weight

General Manufacturing Mining Electricity Basic Capital Intermediates Consumer Goods -Durables -Non durables 1000.00 755.27 141.57 103.16 355.65 92.57 265.14 286.64 53.65 232.99

Feb-12
4.3 4.1 2.3 8.0 7.6 10.2 -0.2 -0.3 -6.1 4.5

Mar-12
-3.2 -4.0 -1.3 2.7 0.9 -20.3 -1.7 1.2 1.0 1.2

Apr-12
-0.9 -1.2 -3.2 4.6 2.1 -19.6 -1.6 3.7 5.2 2.5

May-12
2.4 2.5 -0.9 5.9 4.1 -7.7 2.7 4.3 9.3 0.1

FY12
5.8 6.0 1.7 8.4 7.3 6.4 2.0 5.1 3.3 6.7

FY13
0.8 0.6 -2.0 5.2 3.1 -13.8 0.6 4.0 7.2 1.3

Source: CSO

CRISIL EconomyFirstCut - IIP

Core industries output growth remains tepid

y-o-y%
20 15 10 20 5 0 -5 -10 May-09 May-10 May-11 May-12 Sep-09 Sep-11 0 -20

Capital goods sector remains weak

y-o-y%
60 40

IIP-General

Core Industries

Capital Goods

Consumer goods

Sep-10

Jan-10

Jan-11

Jan-12

-40 May-09 May-10 May-11 May-12 Feb-12 Jun-12 Jan-10 Jan-11 Sep-09 Sep-10 Sep-11 Oct-10 Jan-12 Jun-11 Oct-11

Output of the eight core infra industries grew at 3.8 per cent in May 2012, as opposed to 3.1 per cent in the previous month. The highest growth was recorded by the cement sector which grew at 11.3 per cent. Natural gas was the worst performer and contracted by 10.8 per cent.

Capital goods sector contracted for third month in a row and witnessed -7.7 per cent growth in may 2012. Weak investment demand has adversely impacted the growth of capital goods sector. While the consumer durables grew at a healthy pace of 9.3 per cent, consumer non-durables growth grew by just 0.1 per cent in May 2012.

Forward-looking Indicators
% 80
60 140 40 20 0 -20 -40 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 Nov-11 May-12 100 60 20 -20 -60 Oct-06 Oct-07 Oct-08 Feb-07 Feb-08 Feb-09 Oct-09 Feb-10 Feb-11 Jun-06 Jun-07 Jun-08 Jun-09

Exports (y-o-y%)

m-o-m SA exports

y-o-y %
180

Commercial Vehicles sales

Source: Ministry of Commerce Industry & CRISIL Research

Source: Society for Indian Manufacturers Association

Despite a weak rupee, exports remained fragile in May 2012. Merchandise exports contracted by 4.2 per cent in May 2012. Sales of commercial vehicles grew by 6.6 per cent in June 2012, slightly lower than 6.8 per cent in the previous month. Although growth in sales of commercial vehicles is still above 5 per cent it has weakened in the past few months reflecting weak economic activity.

Jun-10

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