New Delhi: The industrial output in the country is likely to remain under pressure in the foreseeable future as exports are unlikely to recover anytime soon, global financial services major Moody’s said on Thursday.
“India’s industrial outlook will remain dire until there are signs of improvement in export prospects... It is almost impossible for local manufacturers to maintain their previous production levels,” said Moody’s Economy.com, a subsidiary of Moody’s group.
It said exports are unlikely to recover any time soon, as major markets such as the US and Europe are still in bad shape.
Industrial production contracted by 1.2% in February, compared to a growth of 9.5% a year ago, despite stimulus packages announced by the government.
It had turned negative in October last year for the first time in 15 years, as manufacturing, which comprises around 80% of the industry, shrank to 1.2% growth in October from a whopping 13.8% a year ago.
Moody’s, as well as another global major Goldman Sachs, said that the fall was as expected, while Citigroup termed that it was more than anticipated.
Moody’s said that domestic sector may provide some support to local manufacturers citing fiscal stimulus measures, some of which relate to infrastructure development.
The measures will inject much needed support to the industrial sector, it said.
Also the committment of the G-20 nations in improving trade finance was a welcome sign, as this could help to revive international shipment flows, the financial services major said.
The Moody’s pointed out that India which remains an ideal location for firms in search of lower-cost production and R&D base will not be hurt as badly by the global downturn compared with most other emerging economies.
“In the past few years, India had benefited from strong foreign direct investment inflows.
However, amid a downbeat global economic environment, investment has been losing steam. This will in turn weigh on construction and manufacturing activity,” it said.
Meanwhile, financial major Goldman Sachs said negative industrial production growth for India was expected.
“The February IP index was in line with expectations. What surprised was the revision of the January numbers to a positive 0.4% YoY (year-on-year) growth from a 0.5% YoY decline previously,” it said.
While, Citigroup said the contraction was more than expected.
“The contraction was bit more than our expectations of (-0.4%) but mildly lower than consensus of -1.3% YoY,” Citigroup India said.