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Source: Central Statistics Office (CSO)

Source: Central Statistics Office (CSO)

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Source: Central Statistics Office (CSO), *Index of Industrial Production

Source: Central Statistics Office (CSO), *at basic prices at current prices

Source: RBI survey of 802-921 manufacturing companies. Data for April-June 2019 not yet available.

Source: RBI survey of 91 manufacturing companies. Data for April-June 2019 not yet available.

Sample gift boxes and wicker baskets are stacked in a corner of the conference room of Candor Foods’ offices in an industrial cluster of Navi Mumbai. The weeks leading up to Diwali in October will be the company’s busiest, as demand for its products - dried fruits and nuts - soars.In a 30,000-sq ft facility on the same premises, Candor Foods will process around 8,000 kg of almonds, cashews, pistachios, walnuts, dates, etc, to meet that demand, up from a current average of 4,500 kg now. “We expect business this Diwali to be around the same as last year,” says chief executive Yash Gawdi. Bags of raw nuts, fresh off a truck, await their turn to be taken in. A young man puts a lid on a plastic jar of trail mix, seals it with a machine and repeats the process with speed and precision.Candor also makes cereal bars and flavoured peanuts. Gawdi’s forecast for Diwali may come as a surprise to many in the backdrop of the steady drumbeat of reports about a slowing economy and job losses. Plummeting vehicle sales, a rise in unsold apartments and a troubled shadow banking sector have caused the likes of Bajaj’s Rahul Bajaj, L&T’s AM Naik and HDFC’s Deepak Parekh to speak out about the gravity of the economic crisis over the past few weeks. The Indian economy grew at 6.8% in 2018-19 — its lowest in five years.Their concerns were backed by more troubling data recently when industrial output in 11 of the 23 manufacturing segments contracted in April-June 2019, compared with the same period last year. But there were also sectors that bucked the trend, such as food production, apparel and steel, which grew at a faster clip than in 2018.This is a clear sign that the slowdown narrative is not uniform across the manufacturing spectrum. Manufacturing accounts for over 16% of the Indian economy and employs 13% of the country’s workforce. The pockets of growth in manufacturing may disappear if some of the struggling sectors, which are also big employers, do not recover in the next few months. Companies like Candor might start feeling the pinch and Gawdi knows it. “The repercussions of the slowdown are definitely going to be there in other sectors, too. Since food is a basic commodity, it will be hit last.”Candor, which supplies to the likes of Amazon, Grofers and Future Retail, reported revenues of over Rs 50 crore in 2018-19 and Gawdi’s target is Rs 100 crore this fiscal. What works in Candor’s favour, according to Gawdi, is that dried fruits and nuts are increasingly becoming a part of the monthly shopping list for consumers. Candor sells under its own label and also produces for retailers’ private labels. Manufacturing of food products saw an annual growth of around 15% in April-June 2019 in the index of industrial production (IIP). The growth in the corresponding period last year was 12%. Food processing contributes around 9% to India’s manufacturing output, as per government data.Amit Kumat, CEO of Indore-based Prataap Snacks, which makes the Yellow Diamond brand of chips, says more expensive foods like Candor’s will feel the effects of a consumption slump before his company, most of whose products are priced at Rs 5. DK Joshi, chief economist at rating agency Crisil, concurs. “Our sense is that companies which produce small-ticket items have a better chance in this environment.” But biscuit-maker Britannia Industries ’ managing director Varun Berry was recently quoted as saying that consumers are thinking twice before buying even Rs 5 packs. Britannia saw its annual volume growth in the first quarter of 2018-19 halve to 6%, compared with the year-ago period. Hindustan Unilever , too, saw its volume growth slip to 5% from 12%. But Joshi cautions against jumping to conclusions from the performance of a few companies.Another sector that clocked a similar growth rate was apparel— it had contracted 5% in the first quarter of last fiscal. Apparel exports stood at around $4.2 billon, or Rs 29,000 crore, in April-June 2019 — a 7% rise in rupee terms and a 3% increase in dollar terms, though there was a dip in June, according to commerce ministry data. But India still has a long way to go, with its share of the global apparel market at just 4% in 2017, compared with China’s 35%, Bangladesh’s 6.5% and Vietnam’s 6%, as per the World Trade Organization “The government should encourage exports of readymade garments instead of raw cotton and yarn. That’s where Bangladesh and Vietnam have an advantage,” says Raja M Shanmugam, president of Tirupur Exporters Association. He adds that there is also a growing domestic market, which is five times bigger than the export market. “The fact that many global brands are coming to India is an indication. Also, now people wear different clothes through the day— fitness wear, formal wear, social wear and nightwear.” Moreover, the rising number of people shopping online could also spur demand for apparel since the segment accounts for around 30% of e-commerce transactions, second only to electronics, which comprise half the total, according to the commerce ministry. But the threat India faces from other countries in the export market could hurt it in the domestic market too, according to Vijay Kumar, a garment-maker in Tirupur. “Indian retailers are increasingly sourcing from countries like Bangladesh because it is cheaper.” The primary reason for that, he says, is Bangladesh’s wages are a third of what it is in India. When discretionary spends start to go down during a downturn, what could be affected before apparel are mobile phones and consumer durables, as these have much higher price tags and are often linked to financing by non-banking financial companies (NBFCs), which have been staring at a severe liquidity crunch. But smartphone sales continue to be strong. Indians bought around 37 million smartphones in April-June, a 10% rise from last year, according to IDC, a research firm. IDC expects growth to continue in the rest of 2019. But it is a mixed bag in consumer durables, which reported a 2% growth in manufacturing output in April-June over last year.Air-conditioners and refrigerators saw their sales rise 20% and 15%, respectively, in the same period, thanks to an unusually hot summer, according to Kamal Nandi, president of the Consumer Electronics and Appliances Manufacturers Association. AC sales had declined 5% and TV sales had risen 3% in the first quarter of 2018-19. India had a heat wave for 32 straight days this year, the longest since 1988, according to Skymet Weather Services.Television sales, however, did not grow despite the Cricket World Cup. Various reasons are being ascribed to it, including the shift of discretionary spending from TVs to ACs and the attraction of mobile phones over TVs as the primary media consumption device for the young. Nandi, who is also the business head of Godrej Appliances, believes the overall sentiment in the economy might impact consumer purchase behaviour. “But with interest rates going down, EMIs will also reduce.” The Reserve Bank of India earlier this month cut the benchmark interest rate for the fourth time this year. The rate is now the lowest since 2010. While consumer-led sectors like apparel and consumer durables bet big on Diwali, there are some manufacturing segments like steel, which rely on government spending for growth. Steel output grew 14% annually in April-June, compared with a 2% growth in the same period in 2018.Madan Sabnavis, chief economist at Care Ratings, says the government’s infrastructure creation and affordable housing programme could be driving the demand for steel. The government plans to spend Rs 100 trillion on infrastructure in the next five years and build nearly 20 million affordable homes in the next three years. “We are cautious about the automotive space… but optimistic about infrastructure, solar power and appliances,” Jayant Acharya, director, commercial and marketing, JSW Steel, told ET last month.Passenger vehicle sales saw their worst annual decline in 19 years in July and India intends to more than triple its installed solar capacity to 100 GW by March 2022. Auto contributes less than a tenth of the steel consumption in India, with more than 60% coming from construction and infrastructure. The affordable housing push and the Smart Cities Mission will also drive demand for commodities such as copper and aluminium, notes Sabnavis. The output of basic metals rose 16% in April-June. Cement output, on the other hand, grew only 1.2%. Real estate, which consumes two-thirds of India’s cement production, is ailing, in part due to lack of funds in light of the NBFC crisis. Around 1.74 lakh apartments across seven cities are stalled due to lack of financing or litigation, as per Anarock Property Consultants. “The muted growth in cement could also be because of the double-digit growth in April-June 2018,” says Sabnavis.Another sector heavily dependent on real estate is furniture, whose output saw a 10% decline in the first three months of this fiscal. But the manufacture of wood, which is also used in packing and construction, saw an 18% jump. It could also have been helped by an 8% rise in exports in that period.Tobacco products’ output also grew by 6% in April-June compared with an 18% decline a year ago. It is hard to look for corroboration in cigarettes, since they account for just a tenth of total tobacco consumption, and two-thirds of tobacco industry is unorganised. “Therefore, IIP numbers in the tobacco segment are not necessarily representative of the cigarette sector trends,” says a spokesperson for ITC. Legal cigarette volumes have been declining at an annual rate of 4% since 2010-11, even as illicit cigarettes sales have grown 5%, according to ITC.Unlike the sectors dependent on consumption demand or government spending, pharma is relatively immune to a slowdown. Having medicines prescribed to you for an illness is not a choice like buying a phone or a pair of jeans.Siddhant Khandekar, an analyst with ICICI Securities, expects the sector to grow at around 10% in 2019-20 — the same rate as last fiscal. The output of pharma products rose 7% in April-June. In addition to domestic demand for medicines, the easing of the pricing pressure caused by increased competition in the US, which accounts for a third of India’s exports, could also help. There is no looking away from troubling signs about the economy. But for now, some sectors within manufacturing are still growing, a few even at a higher rate than last year. But if consumers decide to hold back their spending further, fearing worse days to come, it could make a bad situation much worse.