India Intelligence Report

   Industrial Growth Slow Down


Government data suggested that industrial growth slowed to 8% from 8.4 because of steep fall in mining and slower year-on-year growth in electrical and manufacturing sectors. 

Growth in mining registered a steep decline while manufacturing and electrical registered minor retreats. The trend seemed to be same this March also as industrial production growth dropped drastically by over 2% points.

In a continuing of yesteryear interventionist policies, Federal Commerce and Industry Minister Kamal Nath warned cement manufacturers that the Government will ban the export of cement if the industry did nothing to check runaway pricing. Nath’s suggestion seems to be that there was a shortage of cement in the market causing inflation and that a curb on cement exports will help domestic supply and reduce pricing pressures. 

Sector-wise Percentage Growth
Sector Current Previous
Industrial 8 8.4
Mining .7 4.4
Manufacturing 9 9.2
Electricity 5.1 5.2
Industrial 7.7 9.8
Production (March 2006)

Prices have gone up by 40-50 percent in North and Western regions since November 2005 when increased must have been no more than 7-8 percentage points because of price escalation in input costs. However, several factors have added on to the sharp increases in prices. First, the cost of electricity has gone up because of increase in oil prices. Second, a Supreme Court order in November 2005 banning overloading of trucks has increase transport inputs. Third, the cement manufacturers have to buy coal from the open market which is more expensive than buying it in auction lots from Coal India Limited. 

Nath dismissed these claims by the industry saying, “he was responsible to the Parliament” and apparently wanted the cement manufacturers to take a cut in profits or absorb the costs as state-owned oil companies are forced to. He accused the industry of “limitless profiteering” on “unjustified and unjustifiable” high prices. It is not clear how Nath expects businesses to absorb costs when international developments, legal requirements, and cut back on subsidies affect cost of goods sold. It is also not clear if Nath wants to pursue the same line with other manufacturers too. A cutback on exports or a cess on exports will reduce export earning increasing trade deficit and ultimately affect the strength of the Rupee—the weakest part of the Indian economy.

Nath wanted the industry to tell the Government steps that they would take to check price rises by May 15. In anticipation of a 8-10% cutback on profits, the stock market has eased 9% on stock prices on major cement manufacturers such as ACC< Gujarat Ambuja, Ultratech, and Birla Corp. 

India is the 2nd largest manufacturer of cement of 150 million tons (mt) and exports 9-10 mt.