The Large Scale Manufacturing (LSM) Index was in red for December 2023 – marking the 18 th consecutive month of year-on-year drop in cumulative LSM. The silver lining if one sticks to positive reporting, is that the quantum of decline in December 2023 at negative 0.39 percent was the lowest since the riot started in July 2022. The reality check is that the stretch of negative growth now extends to six quarters – well and truly in recession zone – and easily the first in recorded LSM history.

The composition of LSM is not much changed from last month with 12 of the 22 broad categories registering positive growth from last year. Textile continues to be the largest negative contributor, whereas readymade garments represented by wearing apparel, continue to be the flagbearer of positive growth. The heavyweight textile sector, with 18 percent basket share in LSM, showed an 11 percent year- on-year dip in 1HFY24, with yarn and cloth both registering double-digit year-on-year decline.

Export quantity of readymade garments recorded under LSM, with a 6 percent share in the index, had the highest positive impact. The LSM details show the readymade garment exports went up 15 percent year- on-year to 42 million dozen pieces. As pointed out after last month’s release, the PBS continues to err in the treatment of export data used for LSM computation. The monthly Advance Release export data, released by none other than the PBS, shows the readymade garment growth for 1HFY24 at 6.9 percent. One would tend to believe that the PBS trusts its own datasets and does not use two different numbers for one piece of data, especially when the LSM comes with a considerable lag to the trade Advance Release.

Consider that on revised basis, the July-December readymade garment export quantities actually went down 2.3 percent year-on-year, as January 2024 data puts the 7MFY24 growth to only 1.5 percent. It is clear the LSM will fail to capture that in the next reading too – and that will result in overstating the LSM, as it did for December, by at least 1 percentage point.

The base effect has been in play for six months, but the negative trend persists. That said, the second half of FY24 may finally be the one that reverses the trend, as the base effect will get stronger for the next six months. The likes of pharmaceuticals, petroleum products, and food groups have started to come out of the rut. White goods and automobiles continue to be painted red – and could still take a while, as interest rates and inflation won’t come down in a hurry.