Factory output numbers for April seem to suggest the worst is behind us, but the next couple of months will have to bring in fairly good data for industrial output to be declared out of the danger zone. The two quarters to September 2009 will have to compensate for the decline in industrial production in the previous two quarters, before the effects of a low base artificially inflate growth figures. The 1.4 per cent growth in industrial output in April masks the pressure points that persist in manufacturing. The overall growth owes itself in no small measure to the 7.1 and 3.8 per cent growth, respectively, in electricity and mining, which combined weigh in at 20 per cent of the index of industrial production. Manufacturing, making up the rest of the index, grew at a far less encouraging 0.7 per cent. Yet this is an improvement over the 1.6 per cent decline in March and the 0.9 per cent shrinkage in February.
The big worry is that capital goods, a fairly robust indicator of investment demand in the economy, is still shrinking, by 1.3 per cent in April on the back of an 8.4 per cent decline in March. Intermediate goods, the products that go into making the stuff that people consume, dispel some of the gloom with a growth rate of 7.1 per cent. But consumer goods — the arrowhead in the demand surge over the previous decade that lofted India’s trend growth rate to close to 9 per cent — are a mixed bag. Consumer durables have benefited from the government’s pay hikes to its employees; this segment surged by 16.9 per cent. Non-durables, on the other hand, shrank by an equally stunning 10.4 per cent.
Points of inflection in economic cycles necessitate a realignment of policy. While it may be too early to reverse the fiscal and monetary expansion undertaken last year, the government and the central bank will, over this quarter, be in a position to recalibrate their responses. Fiscal deficits in the region of 7 per cent may be an overkill and are definitely not sustainable. The sooner industry, which bore the brunt of the credit crisis we imported, gets back on its feet, the closer India is to climbing out of the fiscal hole it has dug itself into.