Mumbai: The poor rains in the first two months of the monsoon have affected a slowly recovering Indian industry, according to the Mumbai-based Centre for Monitoring Indian Economy (CMIE).

''The poor monsoon has warranted a lowering of our forecast of growth of the Index of Industrial Production for 2002-03 to 3 per cent from the earlier 3.5 per cent,'' CMIE in its Indian Industry: A Monthly Review for August 2002 said.

The industry had started showing some signs of recovery in the first quarter of the current financial year, which was mainly on account of the robust rabi crop that had led to a pick-up in demand. This was reflected in the growth in production and profits in the first quarter.

CMIE head (industry services) Hema B Rajashekar says: ''We expect the current year to be the second consecutive year of the slowdown in industrial growth.'' IIP growth was a mere 2.8 per cent in 2001-02 compared to 5.1 per cent in the preceding year.

The poor and erratic southwest monsoon is expected to severely impact agricultural production. Sowing has already suffered and yields are expected to fall substantially. This loss cannot be made good even if the rains improve in the remaining weeks of the rainy season.

CMIE estimates groundnut seed output to fall by 25 per cent each in Andhra Pradesh and Karnataka, although Gujarat could record a 10-per cent growth. Soyabean production is expected to fall sharply by over 50 per cent as Madhya Pradesh has received very scanty rainfall.

Rajashekar adds: ''Since about 70 per cent of the population in rural and semi-urban areas depend on agriculture and allied activities for a living, aggregate purchasing power, and thus demand, would be depressed. In spite of a bumper agricultural crop in 2001-02, the aggregate demand did not rise significantly.''

This appears to be on account of the preceding two years' decline in production that enhanced the lead-time between a rise in rural incomes and spending action. Thus, contrary to expectations, demand did not catch up in 2001-02, thereby slowing down industrial growth.

Aggregate demand is bound to be affected once again this year. Sectors like food products, consumer goods, textiles, garments and two-wheelers would be adversely hit. CMIE expects the manufacturing sector to grow at a modest pace of 3 per cent in the current year compared to 2.8 per cent in 2001-02. The production index of food products is expected to fall by 1 per cent on top of the 1.7-per cent decline in the previous year. This is because the production of sugar, tea and edible oils is expected to fall.

The demand for petroleum products is expected to slow down, as it would not be possible to sustain the high growth of the preceding two years, which largely reflects a substantial increase in capacity. The performance of cement, steel, aluminium and automobiles sectors is expected to be quite good.

The demand for cement is expected to emerge largely from the infrastructure and housing segment, while the steel sector is poised to fare well on account of higher selling prices following a rise in international prices as also domestic demand rising from sectors like consumer durables and automobiles.

Among other segments, aluminium production growth might have a statistical advantage, as last year's production was adversely affected by the shutdown of Balco's plant. Commercial vehicle sales have recovered from a very bad patch and are expected to fare well in the current year. However, even these segments could face a slowdown in the second half of the current year.