Oil hike to push down industrial growth to 3.3%

"We are already in a recessionary phase of the industrial growth," said Dr BB Bhattacharya, an economist with IEG told The Financial Express, even as other economists have argued that the industrial sector is yet to enter into recession.

Compounding the industrial growth climate would be the international economic scenario following the `oil shock’, which has already upset many major economies’ applecart.

"The impact of the `oil shock’ on the world economy is going to negatively affect our exports and capital inflows," said Dr Bhattacharya. This, in turn would erode the forex exchange rates and, in turn, lead to higher industrial costs, he said.

Adding further twist to this complication would be the depressed stock markets and the tight monetary policy that are anticipated to give further setback to investments in the sector as borrowings would become costlier, says IEG.

The latest IEG forecast does not paint a rosy picture for the industrial sector in the coming months at the sector-wise level. Sector-wise, the IEG forecast predicts that under the consumer goods segment, the consumer durable would face the worst wrath as petroleum price hike has compressed the disposable incomes. This segment showed a growth of 23 per cent for the latest period July and this is likely to slip down further.

Consumer non-durables is expected to go from bad to worse having grossed just 1.3 per cent in the latest period.

The capital goods segment is anticipated to be hit the most with the growth of one percent going down further in the coming months, according to Dr Bhattacharya.

Based on the index for industrial production data available till the month of July, IEG has predicted the growth rate for industrial growth at 5 per cent for August, 4.6 per cent for September, 4.3 per cent for October, 3.3 per cent by November and 3.6 per cent by December.

Industrial growth has shown a sharp decline in the first quarter of the current fiscal with an average growth working out to 5 per cent, says IEG. It declined from 4.9 per cent in June 2000 to 4.3 per cent in the month of July.

This has come about basically due to the huge slowdown in the manufacturing sector. The growth in the manufacturing sector has comedown from 6.8 per cent in June to 5.1 per cent while electricity sector has also shown a meagre growth of one per cent.

Except for the mining sector, which has showed a little improvement and showed a higher growth in July at 0.7 per cent as compared to 0.1 per cent for the month of June.