Business

Global meltdown: moderate impact on manufacturing seen

NEW DELHI: The ongoing financial meltdown is likely to have a moderate-to-large impact on various segments of the country’s manufacturing sector even as other sectors such as agriculture and mining are expected to remain largely insulated from the global turmoil, according to the Mid-Year Review 2008-09 tabled in Parliament on Tuesday.

Analysing the sectoral growth implications of the global financial crisis, the review noted that registered manufacturing units might see “some impact on account of export slowdown and liquidity squeeze” in the wake of the downturn owing to reduced internal accruals and consequent increased dependence on borrowings. However, the “adverse impact may get partially neutralised due to a decline in commodity prices,” it said.

As for the unregistered manufacturing units, the impact of the crisis would also be moderate-to-large. However, although the liquidity squeeze on these units “may be greater, their lower dependence on institutional credit may keep the impact moderate.” Moderate impact of the global crisis is likely to be seen in sectors such as consumer durables which “may remain under pressure”, construction, owing to higher risk weights and credit crunch, banking and insurance, some segments of transport, and real estate, which is “likely to remain subdued.”

For the banking and insurance sector, the Review has projected that the “domestic impact should be marginal as credit and deposit growth will remain buoyant. While margins “are also not under pressure”, there could be “some increase in NPAs [non-performing assets],” it said.

As for the “moderate” impact of the meltdown on the transport sector, the review said: “Rail transport may not be affected. Road transport has some problem of acquiring vehicles because of credit choking. Air transport may have a larger impact.”

On the mining sector, the impact is expected to be “negligible” as nearly 90 per cent of mining consist of coal and crude. “Only about 5 per cent, particularly iron ore, could have some moderation on export slowdown,” the review prepared by the Finance Ministry said.

On the positive side, the review has forecast “neutral” impact of the global turmoil on sectors such as electricity and communication, apart from agriculture. In the farm sector, while “growth would be more sensitive to weather fluctuations”, the global slowdown would not affect electricity generation and the sector may have some “positive sentiments” as “the nuclear deal may see some activity.” Telecom companies, the review said, may see “some working capital constraints”, but the “overall impact is likely to be negligible.”

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