Indian companies are struggling with a decline in demand which is affecting production, a fact visible in the December’08 quarter. If October’08 saw a marginal decline in industrial production after more than a decade of continuous growth, November’08 threatens to be worse. Investors should brace themselves for nasty surprises when the quarterly results are announced.
November 2008 indirect tax data shows a 15% decline in excise collections and a 0.5% (error: this should be 0.8%) decline in customs duty collections. That’s a sure lead indicator of a slowdown, and one can expect the drop in industrial production, seen in October 2008, to continue. Excise is a tax on production and a decline, on a sustained basis, usually means production cuts. In December, of course, we will have to adjust for the decline in the Cenvat rate, which will further bring down collections.
Earlier, we had seen how freight carried by the Indian Railways crawled in November. Anecdotal evidence like factories shutting down for maintenance, cutting back production and inventory pile-ups at dealers has been around for a while now. This is continuing in December too. On the positive side, service tax collections are up 15.9% during October (they are reported with a lag of one month) though year to date growth is 29.6%, indicating a slowdown here too.