This article was originally posted here by Kirthi V Rao

Industrial investment contracted 9% in 2011-12, provisional industries data released by the statistics ministry on Tuesday showed.

However, the provisional Annual Survey of Industries data showed that most of this decline was accounted for by the fall in working capital investment, because net fixed capital investment rebounded, growing 25% from a 0.8% decline in 2010-11.
The Annual Survey of Industries is the principal source of industrial statistics and covers all factories employing 10 or more workers using power and those employing 20 or more workers without using power.
According to the survey, investment in raw materials, half-finished and finished goods, or what is called physical working capital investment, declined 61% in 2011-12 after growing by 73% and 162% in the two previous years.
Total investment declined at a time when factory profits grew 17% .

This is in line with the revised national income data released by the ministry in January that showed the economy had grown 6.2%, expanding much slower than the 9% level of the previous year, mainly due to a sharp fall in industrial and agricultural sector growth.

Experts said the decline in working capital investment, even as fixed investment picked up, could be due to the balancing of inventory levels after high investments in stocks in the previous years.
The cost of holding inventories rose as interest rates increased after February 2010 with the winding down of monetary expansion after the 2008-09 financial crisis, experts added.
“The rate of interest was becoming higher, so there was an incentive to lower stocks,” said Pulapre Balakrishnan, director of the Thiruvananthapuram-based Centre for Development Studies.
Interest paid by factories increased 20% in 2010-11 and 37% in 2011-12, the data showed.
Pronab Sen, chairman of the National Statistical Commission , said: “Normally, inventory levels follow a cyclical pattern and this was a period of uncertainty.”
“This kind of a draw-down is usually in a situation where demand has outpaced capacity to produce, and in 2011-12 demand did go up sharply,” he said.
The sectors that had the highest total output were basic metals, chemical products, food products, pharmaceuticals, machinery, petroleum products and motor vehicles.
Mining, wood products, beverages, basic metals, pharmaceuticals and chemical products units increased their output the most since 2010-11.
While the composition of states with the highest number of factories, greatest investment, employment and net value added remained largely the same, Uttar Pradesh dropped out of the top five, both in terms of net value added and persons employed.
Bihar added the most factories to its 2010-11 level, but also turned out to be the state that lowered wages paid to workers the most. Wages declined 17.6% in the state’s factories even as the number of factories grew 15% and number of workers increased 19% since 2010-11.
Karnataka, whose factories’ total production, or the net value addition, grew 152%, made its way into the top five states for both value addition and total persons employed.
The state’s factories produced Rs.1.031 trillion in 2011-12, while the output of factories in Rajasthan at Rs.39,268 crore and Goa at Rs.11,821 crore grew second and third fastest.
In all, 61,866 units were surveyed between October 2011 and April 2012 for the compilation.

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