The Annual Survey of Industries, a deeper study of factory performance than the monthly index of industrial production, finds the investment cycle had turned as early as 2010-11. Capital formation in manufacturing had shrunk in that year despite the economy growing 8.4% and an almost 9% rise in manufacturing output. The survey’s findings for 2011-12 will appear a year from now, but it will in all probability confirm the trend of declining investments in an economy that grew 6.9% and where industrial production limped along at 3%. By 2012-13 the bad news is available in the monthly data on factory output, when the gross domestic product is expected to grow less than 6% and factory output has actually shrunk in the first half of the year. But the tide may have turned with the finance ministry’s mid-year review in December claiming that the economy has bottomed out and industry is showing signs of revival. The latest data set shows factory output grew by 8.2% in October 2012, buoyed by the base of a 5% contraction in the same month a year ago.

The more detailed, and hence delayed, results of the Annual Survey of Industries do throw up a few interesting statistics. Interest costs rose 20% in 2010-11 and rents 12.6%. Profits fell to 55% of added value in manufacturing, down from a peak of 61% in 2007-08. Organised sector employment rose 8.18% during the year but the share of wages in industrial income barely grew. A precursor to how the respective figures might look like in 2012-13 is available in the mid-year review. The net profits of 2,500-odd companies the finance ministry has tracked declined in four consecutive quarters until June 2012.  The 31.2% growth in net profits during June-September 2012 is heartening, given that the cost of credit is still very high, demand is sluggish and infrastructure remains a bottleneck.

These findings corroborate a Planning Commission study on productivity that says the Indian economy may have been hit harder by the 2008 global credit crisis than its managers would have us believe. The productivity gains of the previous decade took a big knock from the relative capital scarcity after 2008. The policy implications for an economy running a persistent trade deficit are clear: foreign direct and portfolio investments into India must be sought with a renewed vigour. Reforms are no longer a political luxury.