The Large-Scale Manufacturing (LSM) marked the thirteenth consecutive month of negative year-on-year growth – an unwanted feat that has never happened before. On a slightly brighter side,the negative 1.09 percent year-on-year growth is the lowest decline in the last 13 months. Goes without saying the low base effect comes into play, and LSM staying in negative territory over negative growth reported a year ago – does not look encouraging. The index for July 2023 is the lowest (barring peak Covid) since July 2018. That is how far industrial activity has been pegged back.
The LSM composition for July 2023 does appear much changed from the past seven to eight months – as more sectors outside of the newly inducted ones that track exported quantities – have moved into the green zone, showing positive growth. Nine LSM sectors showed positive year-on-year growth in July, versus an average of three to four sectors for the best part of 2HFY23. One month is not a trend, but low base will certainly remain in play for FY24.
The biggest contribution to growth once again came from the wearing apparel category – which is the exported quantity of readymade garments. The growth will be moderated for August LSM reading, as latest export reading shows readymade garments export quantity growth at 25 percent. It is worth noting that in dollar terms, the readymade garment exports are actually down 12 percent year-on-year, reflecting a substantial drop in unit values. Food group has shown a healthy 10 percent year-on-year growth after a long gap – headlined by substantial increases in cooking oil, wheat, and tea production. Cement and pharmaceuticals grew appreciably by 39 and 54 percent, respectively – whereas fertilizer showed growth of 26 percent year-on-year.
Petroleum, chemicals, beverages, textile, automobiles, and furniture among others continued the slide. Textiles with the largest share in LSM index had the biggest negative impact of 4 percentage points to overall LSM growth. It is ironic how readymade garments on the other hand have the single largest positive contribution to LSM growth.
The most-recent round of electricity tariff increase is not necessarily reflected completely in July numbers. Natural gas prices are all set to be considerably higher, with effect from July, and will hit the industrial sector more than most categories. While the LSM may well have hit the bottom – the journey north is going to be a very slow one.
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