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Posted on Nov 22, 07:11PM | IBNS
Indian industry has been thrown in a vicious circle where investment is declining fast and it is coupled with a contraction in consumer demand, necessitating some big initiatives not only from the government but also from the Reserve Bank of India, ASSOCHAM has said.
A quick analysis of the Index of Industrial Production for September shows that close of a dozen sectors have seen massive drop in output as they found a big drop in consumer demand. The overall trend is visible in worsening conditions in the capital goods sector, which saw a degrowth of 12.2 per cent in September this fiscal.
In fact, the sector which is a kind of index of the investment appetite in the industry has been in trouble for the last over a year. Even in September, 2011, the capital goods segment had witnessed a decline of 6.5 per cent.
"Instead of improvement, the capital goods sector has seen deterioration throwing a major challenge for the Indian economy," said ASSOCHAM President Rajkumar N. Dhoot.
ASSOCHAM President also said what is even more worrisome is the fact that the manufacturing sector which is the biggest creator of jobs in the industry has slipped into the negative territory posing serious threat to the employment situation in the country.
In fact, "we find ourselves in a kind of a chicken and egg situation. For reviving investment the consumer demand is required, which itself is showing sluggish trend. The consumer demand is a function of increased employment which can be generated by increased employment," the ASSOCHAM paper said.
The consumer goods sector was down by 0.3 per cent in September this fiscal while for the six-month period of April-September the growth declined to 2.5 per cent from 4.6 per cent in the same period of the previous financial year of 2011-12.
Several critical segments, some of them are related to exports market, have also shown a big contraction in output in September. For instance, with the export demand facing a severe crunch, the gems and jewellery registered a contraction of production to the extent of 21.9 per cent.
The heavy industry sector is also in the crisis. For instance, the cement machinery showed a huge degrowth of 57.7 per cent, while heat exchangers was down 47.2 per cent in September. Other segments which were thrashed included sponge iron, stainless alloy steel, moulding and plastic moulding machinery.
"These are not sheer numbers, Lakhs of jobs are at stake for which we need to kick- start the economic activity again," said Dhoot.
Reiterating demand for a big cut in interest rates, Dhoot said once the investment resumes and supply side is taken care, inflation would surely drop to a level where the growth is sustainable.
While the Finance Ministry has taken some encouraging steps to revive the investment sentiment, the efforts have to be supplemented by the RBI and different wings of the government, the chamber said.
"We are hopeful that the initiative like the National Investment Board would materialize soon. That step would be critical in reviving the investment sentiment in the entire infrastructure space," said the ASSOCHAM Chief.
ASSOCHAM said a large number of projects involving several crores of rupees are stuck because of environment hurdles or other regulatory issues. Land acquisition remains a sticky area for the investors who want to put in money in the manufacturing sector.
"If we want to take our manufacturing anywhere near China, we would need to speed up clearances with regard to land acquisition etc," said Dhoot.