Rabbit out of a hat: Large-scale manufacturing registers 7% growth

Surprise growth rate reached after revision in data calculating methodology.

ISLAMABAD:

The growth in large industries production surprisingly shot up to near seven per cent in August, a phenomenon that seems contrary to ground realities and is mainly attributed to a change in computing methodology.

According to the revised formula, the government has increased the number of industries to 112 from 100 to assess the performance of large-scale manufacturing (LSM) industry. Base year has also been changed from 1999-00 to 2005-06 and some items have been replaced with new ones. Weights of items have also been revised.

It is the second such change in less than three months as the government has earlier changed the inflation calculating methodology. Experts were appreciative of the change in inflation measuring methodology which was widely discussed before implementation. It also provided a breathing space for the government as the State Bank reduced interest rate by one and a half percentage points in one go following a sharp fall in inflation.

However, rebasing of the year and changes in the LSM index took the market by surprise, as the government did not drop any hint about its plan in the past.

“The rebasing of large-scale manufacturing index is part of the overall rebasing of national accounts and is the second phase after the rebasing of Consumer Price Index,” said Asif Bajwa, Secretary Statistics Division, while talking to The Express Tribune. He said besides adding more industries the government also dropped and replaced certain industries in the index.

According to the Federal Bureau of Statistics, large industries registered 6.84 per cent growth in August over the corresponding month of last year. The data is computed on the basis of output of 112 industries monitored by the Oil Companies Advisory Committee, Ministry of Industries and Provincial Bureaus of Statistics.

The data showed that 65 items, which were monitored by the Provincial Bureaus of Statistics, saw 3.7 per cent growth in August, a major push to overall LSM growth. The FBS has added 11 items to the provincial index.

The Oil Companies Advisory Committee data showed that the oil and gas sector grew 2.3 per cent in August while the Ministry of Industries and Production data depicted 0.9 per cent growth after the FBS added one industry to the list of 35.

For the current financial year, the government has estimated an overall economic growth of 4.2 per cent. Of this, the share of large-scale manufacturing is expected to be two per cent. Floods in Sindh this year are feared to have shaved off half a percentage point from economic growth, but latest LSM figures may add some points to the annual statistics.

LSM’s share in the overall economic growth is 12.1 per cent and after August numbers, annual growth may also show some momentum.

“In August, the industry was hit hard by load-shedding of electricity and gas and 6.9 per cent growth (in LSM) was awfully shocking,” said Senator Haroon Akhtar Khan, member of key standing committees and a renowned industrialist. He added in August there was no factor that could boost LSM growth and this figure could not be logically justified.

July-August data

According to FBS statistics, in the first two months of the current fiscal year, large industries grew 3.6 per cent. The growth was 0.68 per cent in July.

Again, the major push came from growth in 65 industries whose statistics are compiled by provincial bureaus. This data showed a 3.3 per cent growth in two months. Thirty-six industries showed contraction of 0.8 per cent in two months while the oil sector grew almost one per cent in the same period.

Published in The Express Tribune, October 29^th, 2011.