LSM deep in red

Large Scale Manufacturing went down for the fifth straight month, but on a cumulative and monthly basis. This last happened during peak Covid in 2020. Never before or since in the last ten years. On a cumulative basis, negative 3.6 percent growth for 5MFY23 is also the lowest at any point, excluding peak Covid. Barring an out-of-the-blue turnaround, trust the LSM growth for the fiscal year to be in red. A rare occurrence in the country’s history.

Unlike the previous periods of contraction, the current one has all that could possibly go wrong simultaneously. Floods causing supply disruption, eroding purchasing power due to high inflation, a deepening foreign exchange crisis, import curbs, and sky-high interest rates – have all combined to ensure there is not much steam in large-scale industrial activity. Business confidence surveys conducted by the central bank and other representative bodies, show more of this is in store for the second half of FY23. LSM growth at negative 3.6 percent may well not be the bottom.

Of the 23 broad LSM categories, only 5 have shown positive growth. This has continued to come down over the months – has been the exact opposite a year ago. Among the industries showing positive growth, four are the newly inducted ones, based on quantities exported. Readymade garments, football, and furniture continue to grow strong. Readymade garments have the single largest contribution to LSM growth with 6 percent weight – having grown 51 percent year-on-year. Footballs and furniture exports also nearly doubled during the period. In value terms, the exports have only improved less than 2 percent year-on-year, but this is how the rebased LSM now works.

Everything else heavyweight food and textile, chemical and petroleum, cement and automobile, pharmaceutical and machinery – was painted red. Textiles with the highest QIM weight also had the biggest drag with an 11 percent drop. Pharmaceuticals and automobiles followed with a sizeable contribution to the drop – as a combination of restricted import and reduced demand led to the double-digit decline.

Details for December 2022 are awaited, but export quantities could well have come down for wearing apparel, and other categories. The textile industry has reported massive layoffs and shutdowns, and it would not be entirely surprising if readymade garment exports feel the pinch soon. Even if apparel export quantities only grow moderately – the LSM slide could enter double digits very soon.