Large Scale Manufacturing went down 7.75 percent year-on-year for October 2022. That is the sharpest October drop since the start of the new LSM base from July 2016. The cumulative index for Jul-Oct FY23 is down 2.89 percent year-on-year. This is also the sharpest decline in five years, minus the 5-month peak Covid period from March 2020 to July 2020. LSM reading for October is the lowest in over 5 years.
The LSM growth has stayed negative for four straight months now – mirroring the slowdown of 1HFY20. Only this has all the ingredients to last longer, as business and consumer confidence tracked by various bodies sit at multiyear lows. All of what is on display is hardly surprising though, given one crisis after another – limiting the businesses' ability to grow.
The commodity supercycle may have peaked already and is on its way down, but the fallout on currency, wholesale and consumer inflation, and foreign exchange reserves is still well and truly in play. Political instability has gone on for so long that it has started to look like the new normal. But anything short of clarity on the political front will continue to go against the overall business confidence.
Textile and food – the two LSM heavyweights have contributed the most to the downside. Textile’s dip is getting more pronounced as one goes deeper into the fiscal year. The decline is now fast approaching double digits, as slow cotton arrivals promised right after the floods. Other sectors such as machinery, electronics, and chemicals also face supply-side bottlenecks – as authorities have cracked down on imports in a bid to arrest the economic slide.
Demand side factors in sectors such as petroleum, automobile, and cement have been visible for quite a while and are only firming up more and more. The only thing to write home about is the export performance from wearing apparel (readymade garments), football, and furniture industries. Volumetric growth has been encouraging in the sectors, even though the overall value of exports has grown by only a fraction.
Exports have held on so far but the cracks have started to appear. The textile sector has made the most noise on energy pricing and availability. If and when the global economic meltdown weighs in on exports, particularly garments, the LSM growth slide would not take long to slide into double-digits.
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