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Infrastructure: Infrastructure sector bounces back in April |
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Hopes of an economic recovery prevailed, as data for the output in six core infrastructure sectors rebounded in April, with a 4.3 per cent increase — the most since July 2008, driven by a better-than-expected performance in coal, electricity and cement. These sectors collectively account for 27 per cent of the Index of Industrial Production (IIP).
“Government spending in the infrastructure sector could be one of the key reasons for this increase. The IIP is definitely going to be in positive territory in April,” said DK Joshi, principal economist, Crisil.
The output in the sector during April is more than the 2.7 per cent increase seen in the previous month, and about double of what was seen in the year-ago month. April's jump would have been higher, but for the substantial dip in production of crude oil and petroleum products (see table). IIP had dipped 2.7 per cent in March 2009, the most since inception of the index in 1994.
The data showed a record increase in coal production during the month under consideration, owing to output from new mines. About 75 per cent of the overall coal production is used in power plants, which recorded an increase in output during April. Economists said additional demand for power as a result of rising industrial activity could be a possible reason for this increase in output during April.
Cement production grew highest since February 2007 during the relevant period, pointing towards increased activity in the infrastructure sector. Experts, however, point out that construction activity in the housing sector, a major user of cement, is yet to pick up. The sector is likely to see 50 million tonnes of additional cement capacity in 2009-10.
Steel production also improved in April over the previous months. The sector has been seeing a dip in production since October 2008, barring the first two months of 2009. However, petroleum sector production remained lackluster. Refinery output in April was also the lowest in more than two years. Crude oil production has been dipping continuously since June 2007, November being an exception.
Retail
Trading Revolution: Bharti Wal-Mart Joint Venture now a reality
The Bharti Wal-Mart joint venture has finally opened its first cash-and-carry store, nearly two years after announcing its plans, and intends to open 15 such wholesale stores in the next three years. Two European retail majors, Tesco and Carrefour, have announced similar plans while the German group Metro has already established an Indian presence. If all these entities set up shop and grow as they would like to, together they will eventually have a perceptible impact on the Indian supply chain for retailers—even though the action is slow and change even slower. Modernisation should improve supply efficiencies, so that farmers get a better price for their produce even as consumers get better bargains. This is the core of the trading revolution that India has been waiting for. Historically, the US economy made significant productivity gains during the 1990s when its retail supply chain was revolutionised, leading to the de-layering of the distribution system and better prices for consumers. Conversely, Japan did not and has suffered.
The entry of foreign companies into retailing has been restricted so far to single brand stores (like Reebok and Benetton), ostensibly because of the job losses feared as a result of the possible closing of traditional corner stores. Hence the stipulation that the global chains open only wholesale outlets, to cater to existing retailers—which is of course a plus in itself. However, this does not mean that organised retailing has been kept at bay. Groups like Reliance have opened hundreds of stores and are learning that there is no one formula that works in the Indian market; some have even started feeding into the traditional outlets!
While retail chains like Westside and Spencer’s have grown quite rapidly, some chains closed down parts of their operations when the economic slowdown last year dented consumer confidence. Retailers have learnt the costly lesson that stores must be opened where they can get a regular loyal customer base, and not necessarily in prominent locations which create hype and footfalls but no commensurate purchases. If wholesale distribution gets organised, with proper supplier linkages that facilitate volume purchases, the setting up of cold chains and the development of export markets, then India can reap the gains of modernising its trade without too much hinging on the issue of allowing foreign investment in the sector. In the process, it could also revolutionise Indian agriculture and lead to sustained growth of output along a higher trend line.
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