Large Scale Manufacturing grew at 4.8% in first quarter of 2020-21

 Food, textile and mineral sectors reported increase in production

The Large-scale manufacturing (LSM) has finally picked up some recovery in the first three months of 2020-21 financial year. According to the data of Pakistan Bureau of Statistics (PBS), the LSM grew 4.8%. The food, textile and mineral sectors reported the increase in production.

The cumulative expansion in the first three months (July-September) of current fiscal year came in at 4.8%, reported the national data collecting agency. LSM constitutes 80 per cent of the Pakistan’s total manufacturing and accounts for nearly 10.7 per cent of the national output.

Out of 15 major industries, nine saw a surge in production while output of five industries showed contraction in the first quarter compared to the same period of previous fiscal year, according to the PBS.

The government expects a 2.5% contraction in the LSM sector in the current fiscal year, according to the Annual Plan 2020-21, released by the Ministry of Planning and Development on the eve of federal budget.

LSM recorded 7.7% year-on-year growth in September, which kept hopes alive for a recovery after the large industrial sector contracted more than 10% in the previous fiscal year. On a month-on-month basis, the LSM sector showed 10% growth in September over August.

The industrial sector has a major contribution to the tax collection and the sector’s share in revenues is almost triple than its contribution to the overall economic output. The Federal Board of Revenue (FBR) had collected Rs1.01 trillion in taxes in the first quarter with a growth rate of only 4%.

Data collected by the Oil Companies Advisory Committee (OCAC) showed that 11 types of industries registered an average 0.2% growth in the first quarter of current fiscal year. Production of jet fuel declined almost 43%, diesel oil 62% and lubricating oil 40%.

However, the production of kerosene oil increased 36%, motor spirit 18% and high-speed diesel one-tenth in the first quarter.

The Ministry of Industries, which monitors 15 industries, reported 3% growth in the LSM output. Provincial bureaus reported a growth of 1.7% in 11 industries. Sectors that posted growth on a quarterly basis included textile that grew 2.1% and non-metallic mineral products that increased 22.2% during the July-September period.

But the output of power looms declined 50% in the first quarter, contrary to the media hype generated around utilisation of power looms at full capacity. The fertiliser sector showed 2.1% growth whereas the food, beverages and tobacco group recorded 13% growth in the first quarter.

The manufacturing of chemical products increased almost 10%, paper and board 10.4% and rubber products 8.2%. The pharmaceutical sector registered a growth rate of 13.4% in the July-September period. The coke and petroleum sector output increased 2.7%.

Industries that registered a dip in manufacturing included the automobile sector, which saw a contraction of 5.4% in the first quarter. Iron and steel production fell 8.1%, electronics 20.7%, leather products 45%, engineering products 37% and wood products 70% in the first quarter.

According to Pakistan Bureau of Statistics (PBS), the output of the Large-Scale Manufacturing (LSM) sector fell by 10.17 per cent during fiscal year 2019-20 (FY20) compared to financial year 2019.

The drop in the LSM output was due to slow economic activity in the first half and negative economic impact of Covid-19 in the last quarter of FY20.

According to the data released by PBS, LSM output reduced 24.8 per cent Year-on-Year (YoY) in May 2020. Since May, the decline in LSM production has decelerated owing to the resumption of production activities in textile and other sectors.

LSM production increased by 16.81 per cent in June 2020 compared to May 2020. However, LSM output in June 2020 was still 7.74 per cent lower on a year on year basis.

According to economists, higher interest rates, exchange rate depreciation, contractionary monetary and fiscal policies decreased LSM output in FY20. The contraction in textile and food, beverages and tobacco, iron and steel, coke and petroleum products dampened the overall manufacturing in the country.

Sector-wise, production of 11 items under the Oil Companies Advisory Committee decreased by 20.10 per cent and production of 36 items under the Ministry of Industries and Production decreased by 11.20 per cent in FY20.

                                                              Khalid Bhatti