Small growth in large scale manufacturing

It is one thing to succumb to seasonality; it is another to yield to non-cyclical outside factors. But the worst is when both turn unfavourable, simultaneously.
In April this year, the large scale manufacturing index fell by 10.88 percent month-on-month, its biggest monthly fall since February 2004.
The decline was largely in line with LSMs historical trends that reveal an average month-on-month decrease of 6.6 percent in April each year (see graph). Only this year, it was sharper-than-usual (over and above the 9.3 percent monthly fall in April 2005) which dragged the 10MFY11 LSM growth to 1.71 percent from 4.52 percent in the year-ago period.
There is a wide array of factors responsible for this kind of sluggish performance; law and order, and power and gas shortages - being two of the major detrimental elements. And both seem quite irreparable in the short to medium term.
The third major factor is the flow of credit. Thanks to high interest rates and increasing government borrowing from commercial banks, growth private sector credit supply has been on a nosedive since the start of the current calendar year.
The fall in net textile sector borrowing that generally bottoms out in Mar-Apr hasn started recovering yet. The sector alone borrows nearly one-fifth of total private sector lending (nearly 40 percent of total lending to manufacturing sector) and any loan shredding in the sector will naturally result in overall decline in private sector credit growth.
However, even if lending to textile picks up, it isn going to significantly alleviate LSM concerns, because, according to detailed LSM data, production of cotton yarn and cotton cloth was already up 3.09 and 0.55 percent year-on-year, respectively, in the ten months ending April.
The real culprits behind LSMs fallout are commodities like petroleum products, cigarettes, nitrogen fertilizer, cement coke, pig iron, tractors, trucks, buses, ginned cotton, medicines, paints, deep freezers and other electric items.
In other words, the LSM sector is suffering from a broad-based decline than any sector-specific problem. And with the nature of the detriments cited above, LSM is likely to keep struggling in the near future.
This, when seen in the light of historical trends, suggests that the full-year LSM growth might be no more than 1.0-1.2 percent; unless last years numbers are causally revised.