The government has forecast that India’s economy will grow at 7.6% in 2015-16, the fastest in five years, buoyed by a strong revival in the industrial sector.
The manufacturing sector, which accounts for the 75% of India’s total industrial output, will likely expand at 9.5% in 2015-16.
Latest data from plants across the country, however, seem to suggest that factories are not producing goods and firms are not investing at a pace fast enough to push growth.
Industrial output growth — the closest approximation to measure production activity among thousands of factories— contracted 3.2% in November pulled down by a muted manufacturing and consumer goods sector.
Factory output, measured by the index of industrial production (IIP), has grown 3.9% during April to November compared to 2.5% in the same period of the previous year.
According to IIP data, manufacturing sector grew by a tepid 3.9% in April to November, compared to 1.5% in the same month of the previous year.
Capital goods output, a proxy to gauge investment activity, grew at 4.7% in April to November against a growth of 4.9% in the same month of the previous year.
The national income data released on Monday, on the other hand, shows that gross value added in manufacturing sector — a metric to measure factory output — grew at an average of 9.63% (at constant prices) during April to December, baffling analysts.
During October-December, according to national income data, the manufacturing sector had grown at 12%, widely divergent from the data shown by the monthly IIP numbers.
The national income data also has pointed towards a deceleration in investment activity. After adjusting for inflation gross Fixed Capital Formation (GFCF), a marker for new capacity additions by firms, is set to fall to 29.4% of GDP in 2015-16 from 30.8% in the previous year. This would be the first time in five years when GFCF in constant prices have fallen below 30% of GDP, signs that low consumer demand and high capital cost may have forced firms to defer new capacity additions.
While the government has been upbeat over the latest data that show that India will canter ahead of the rest of the world, lingering doubts over the new GDP calculation data have flummoxed analysts.
Exports, which have plunged for the past 13 successive months, remain a key concern, a fact that seems to have got even some within the government worried.
“Declining exports seem to be predominantly determined by a decline in the world demand,” the government’s mid-year economic analysis tabled in Parliament in December said. “Regardless of the causes, the effect has been a drag on growth.”