Decline in IIP in Apr-Jan 2007-08 a cause for concern: CII

Decline in IIP in Apr-Jan 2007-08 a cause for concern: CII


The further decline in Index of Industrial Production (IIP) for the month of January is a cause for concern, said Confederation of Indian Industry (CII). The IIP growth during April - January 2007-08 declined to 8.7% when compared to 11.2% IIP growth during 2006-7. Tight monetary policy resulting in high interest rates have been the major factor contributing to the decline in IIP growth, said CII. CII notes that the decline in capital goods production is also a cause for concern, which came down to 2.1% in January 2008 when compared to a growth of 16.3% in January 2007.

The decline in capital goods production could be attributed to decline in growth of IIP of key sectors such as electricity and manufacturing and decline in production of consumer durables sector since April 2007. The decline in growth of IIP particularly in manufacturing, electricity and consumer durables would have an impact on the investment decisions leading to decline in IIP growth of capital goods.

The further decline in consumer goods in the month of January 2008 to -3.1% and -1.7% for the period April - January 2007-08 is also a serious cause for concern. CII believes that consumer durables sector is highly sensitive to demand conditions, which are currently under stress due to high interest rates. The recent appreciation of the Rupee has also made imports cheaper and contributed to stock pileup for domestic producers thus leading to a lagged impact on production. Raw material price increase has also led to some price increase for the consumer, to which the consumers have not responded positively, as per CII.

The growth in non-food bank credit off take during the period April to February 2007-8 has consistently declined over these 11 months when compared to the corresponding period of last year. The decline in growth of non-bank credit ranges from 6% to 11.7% over the 11 months of 2007-08. Overall, during the period April-February 2008 the non-food bank credit has declined by Rs 187.60 billion, said CII.

CII strongly feels that with average Inflation at acceptable levels during the current fiscal, there is room to bring down interest rates to boost consumption demand as well as investment demand. CII submits that any further decline in the growth of IIP, especially that of capital goods, electricity and consumer durables need to be arrested. Further, CII also has called for the following measures that would boost the capital goods sector in the medium to long term and provide growth impetus for capital goods sector.

A minimum custom duty on the capital goods should be raised to 10% to have the level playing field with the imports from China. India currently has a 35% disadvantage when compared to China due to China`s controlled currency and subsidies.

The government should persuade western countries to lift restriction on export of CNC controls and machines now classified as `dual-use`.

A scheme similar to the TUF to be implemented for capital goods industry, specially focused on engaging the SME sector.

Introducing a scheme for modernization and technology upgradation.
Granting 150% deduction in terms of R&D to the capital goods sector.
Reducing, exempt excise duty from components of textile machinery where the finished machinery is exempted from excise duty.
Allocation for Parks dedicated for high technology capital goods.