MASTER MIND FINNASSET: Negative growth of consumer goods is indicative of no turn around in the consumer spending-Care Ratings

Monday, April 14, 2014

Negative growth of consumer goods is indicative of no turn around in the consumer spending-Care Ratings

After registering a positive growth in the month of January 2014, Index of Industrial production (IIP) for the month of February 2014 registered a negative growth of 1.9% as against a growth of 0.6% in February last year. Negative growth is mainly on account of weak performance by the manufacturing sector. This was against a positive growth rate expected by CARE Ratings based on growth of 4.6% in the core industry sector for February.

The weak performance in Industrial output continues to prevail mainly due to the declining consumer demand partly on account of high inflation and absence of sufficient investment due to prevailing high interest rates and prevalence of surplus capacity. Also there has been very limited movement in the infrastructure space. Cumulative growth in April - February FY14 stood at -0.1% as against positive growth of 0.9% in the corresponding period of the previous year.

Negative growth of 1.9% comes as a disappointment after a positive growth in the previous month. Negative growth of consumer goods is indicative of no turn around in the consumer spending. Weak domestic demand, high raw material cost on account of high inflation, high interest rate and low business sentiment has resulted in weak industrial activity. Hence, the biggest challenge is to revive manufacturing for overall growth to pick up.

In March it looks very unlikely that there will be positive growth as the base year effect is quite sharp. With a peak index in March 2013, m-o-m growth in March 2014 has to be 12.4% for zero growth which looks unlikely. Therefore, overall manufacturing and industrial growth will be negative in March as also for the entire year.

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