India's Index of Industrial Production, or IIP, continued to fall for the third successive month to a negative growth in February, despite the Indian government's providing two stimulus packages, followed by Reserve Bank of India pumping in over Rs.3-lakh crore into the economy by way of cutting rates and easing reserve norms.

This is the fourth time this fiscal that industrial growth turned negative. The growth rate was also pulled down by the negative contribution from manufacturing, mining, basic goods and intermediate goods sectors as also consumer durables.

As per the data released by Central Statistical Organization of the Ministry of Statistics and Programme Implementation Thursday, the IIP for February witnessed a negative growth rate of 1.20%, compared to the positive growth of 9.5% for the corresponding month last year.

However, the ministry revised the estimated growth for January to a positive of 0.39% from the earlier negative figure of 0.5%.

During January, the manufacturing sector, with a weightage of 79.4%, showed a negative growth rate of 1.4%, compared to a positive growth of 9.6% in February of its preceding year, while that of power fell drastically to 0.7% from 9.8% for the corresponding month of last year. The growth rate of the mining sector showed a negative growth of 1.6%, compared to a positive growth of 7.9% in January last year.

As for industries, 8 out of the 17 industry groups showed a positive growth in February, compared to the corresponding month of the preceding year.

The industry groups consisting of 'Machinery and Equipment other than Transport Equipment' showed the highest growth of 15.6%, followed by 12.6% in 'Other Manufacturing Industries' and 6.3% in 'Beverages, Tobacco and Related Products'. On the other hand, the industry group 'Metal products and parts, except Machinery and Equipment' has shown a negative growth of 31.3%, followed by 28.1% in ''Food Products and 16.5% in 'Furniture and Fixtures'.

As per the use-based classification of the IIP, the growth rate of capital goods in February fell to 10.4% from 10.7% in February last year.

The IIP stated that during February, the growth of basic goods showed a negative growth of 0.4%, compared to a positive growth of 7.3% in the corresponding month of the preceding year. The intermediate goods also had a negative growth rate of 5.4%, compared to a positive growth of 8.5% for the same month in February last year.

In February this year, the consumer durables sector had a growth rate of 5.7%, up from 3.1% in February of the preceding year. The growth rate of non-durables showed a negative growth rate of 5.5%, compared to a positive growth of 14.3% for the same month last year. Consequently, the growth rate of overall consumer goods witnessed a negative growth of 3.0%, compared to a positive growth of 11.7% last February.

For the first eleven months of this fiscal, the rate of IIP growth was 2.8%, a significant drop from 8.8% for the comparable period last year.

During this April-February, the growth rate of the manufacturing sector decelerated to 2.8% from 9.3% in the first eleven months of fiscal 2008, while that of the mining sector slowed down to 2.4% from 5.2% for the first eleven-month period of the last fiscal. The growth of the power sector also plunged to 2.4% from 6.6% for the corresponding period last year.

Along with the Quick Estimates of IIP for February, the indices for January underwent the first revision and those for November last year underwent the second and final revision, in the light of the updated data received from source agencies.

During February, the growth rate in six core-infrastructure industries, having a combined weight of 26.7% in the IIP, slowed to 2.2% from 7.00% in February of the preceding year, due to poor performance by all sectors, except crude oil.

During the first eleven months of this fiscal, the six core-infrastructure industries registered a growth of 3.0%, down from 5.8% during the corresponding period of the preceding year.

Subir Gokarn, Chief Economist at CRISIL, attributed the decline to a high base effect, due to very high growth numbers in February 2008. He added that IIP numbers remained mildly negative, with export-oriented sectors continuing to reel under the impact of global numbers, while some sectors like auto doing better in February this year. The stimulus packages, particularly on the credit side, are beginning to show an impact on the economy.

Indranil Pan, Chief Economist, Kotak Mahindra Bank, expects the March export numbers also to be negative. The positive side for India, he added, is that to a certain extent demand from the rural segment is still strong. So he does not see a very sharp downward movement on IIP, but believes India's IIP numbers would remain in the negative territory for some more time.

However, Saumitra Chaudhuri, Economic Advisor, ICRA, is more optimistic about India's economic conditions. He foresees the negative number will continue only for a short while and expects the general economic conditions and industrial output to improve.

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