For an economy that is struggling to scramble out a crippling slowdown, the latest industrial output data comes as a pleasant surprise. The millions of factories peppered across India produced 2.5% more output in March as compared to a contraction of 2.8% the same month last year. Capital goods output, a measure of investment activity, grew by 6.9% — the second successive month when it has been in positive territory.
Seen in isolation this data would imply that the economy has turned the corner. It may be tempting to believe the slowdown hump is decidedly behind us. Yet, the time to open the bubbly may still be a few months away. A few caveats may be in order: the growth in the index of industrial production — the closest approximation for measuring economic activity in the country’s business landscape — jumped in March, primarily aided by a 3.2% growth in the manufacturing sector.
A few devils, however, may be hiding behind the numbers. Consumer durables’ output fell 4.5% during March, mirroring what most shop-end evidence was throwing up. Spending on television, refrigerators and cars since autumn continues to remain muted. One needs to be careful about hastily fitting a trend, for hiding behind reams of numbers is an occurrence called the ‘base effect’ — a statistical phenomenon that makes the speed of change look high compared to a previous period of low growth, although the real increase may not be large.
That manufacturing output contracted 5% in March in the previous year, may partly explain the leap in factory growth numbers. The numbers reflect that policy inertia has hurt infrastructure output. Mining and electricity output growth remains sub-par as policy issues in these sectors are still unresolved. This suggests that part of the slowdown in production is due to supply constraints.
These cautions aside, hopes of a recovery in the broader economy have sprung up anew in the wake of the latest set of numbers. The best way to aid this incipient turnaround is to prompt people to spend more. In times of persistent high prices, spending power can rise only by spinning out jobs and multiplying income. A fresh round of policy pushes is long overdue.