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Downfall in demand affects industrial sectors: study

KOCHI: Steel, auto and textiles sectors are facing downfall in demand as global recession is hitting the Indian economy hard, according to an ASSOCHAM Eco Pulse (AEP) Study.

The study, ‘Demand scenario in Indian industry,’ has revealed that the sectors where the worst downfall in demand was seen were steel (-18 per cent), auto sector (-3.8 per cent), auto components (-0.8 per cent) and textile (-0.25 per cent).

The demand growth across the sectors is hit as the recession engulfs the world economy weakening the demand in India as well.

Average demand growth during the third quarter of the fiscal across all sectors was 10 per cent. The sectors which continued to show impressive growth in demand included chemicals (50 per cent), machinery (18.8 per cent), and food processing (17.7 per cent).

The study analyses 11 sectors based on the corporate results of 222 companies. It excludes the service sector firms for the unavailability of price/inflation data. The wholesale price index (WPI) was used to adjust the sales for the price rise or decline impact. The average WPI for three months (October to December) corresponding to the year 2008 and 2007 was considered to adjust the gross sales for the price effect.

The steel sector which derives most of its demand from auto and construction sector is hit hard. The gross real demand was 18 per cent lower in the last three months of the calendar year 2008 as compared to similar period of previous year.

The auto sector is one of the worst hit sectors as the economic crisis deepens. Even as the Reserve Bank of India has slashed the policy rates several times, the positive impact of the same is scarcely witnessed on the sector.

Average real demand across the segments in auto sector has shrunk by 3.8 per cent in last three months. The gross sales of seven auto majors went down from Rs.8,260 crore in October to December period (2007) to Rs.7,200 crore in similar period of the year 2008. Thus the demand contraction has been even larger in nominal terms at 13 per cent. With the adjustment for price increases, the rate of decline in demand came down to 3 per cent.

The demand of auto component sector is directly linked to the auto sector, which is struggling at domestic as well as international level. The impact on the auto ancillary sector has been not so severe. Its demand reduced by 0.8 per cent in the third quarter of the fiscal.

The textile sector was hit due to slowdown in exports even as the domestic demand has been intact. The inflation-adjusted demand for the quarter reduced by 0.25 per cent as the textile exports are showing declining trend. The analysis was based on the sales reported by 38 textile firms during October to December 2008 period.

Demand growth in the electronic goods sector directly depending on the consumer confidence levels was 16 per cent during the third quarter. However, the price rise in the segment was minimal. The sales of 11 companies analysed increased from Rs.2,500 crore to Rs.2,900 crore. The food processing sector has witnessed 17.4 per cent growth in demand as the domestic demand remained intact for the processed foods. Demand growth in the pharmaceutical sector is still showing resilience even as the exports have started declining.

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