Factory output in the year 2008-2009 is poised to shave 6 percentage points off the previous year’s growth, pulling down the overall growth rate of the economy close to 6.5 per cent. Indian industry, which contributes around a fourth of the country's GDP, will, by growing 2.5 per cent, have escaped quite a bit of the havoc being wreaked upon Asia’s export-led economies. Asia exports half of its produce to the West, India’s modest achievements — we were targeting exports at 20 per cent of the GDP this year — have shielded us somewhat. The government reckons the industrial slowdown is export-driven, but domestic demand is robust enough to keep India from posting absolute declines in manufactured output.
Leading indicators are being cited, principally investment and consumption demand. Capital goods have grown 8.8 per cent in April-February 2008-09, feeding into industrial capacity building committed to in the first half of the year. This, however, is the tail end of the investment cycle; the growth of the capital goods industry has halved from a year ago. New capacity is unlikely to materialise in 2009-10 as companies seek a clearer picture of the global economy before bringing fresh capital expenditure to the table. Consumer goods, propped up by pay hikes and tax giveaways, are likely to post twice the growth rate of industry overall in 2008-09. These transfer payments will run their course through 2009-10 as well.
If exports are dragging us down, they deserve a bigger policy push than they have received so far. Currency intervention by itself will not help India grab a bigger share of a declining global
market for merchandise. Individually, exporters will have to learn to deliver more pleasure as clients renegotiate long-term contracts. The rest of Asia outplayed us when global trade was booming. We cannot afford to miss the opportunity hidden in today’s challenge. Pity, neither the government nor the plethora of export promotion councils has moved into the higher gear the terrain demands. Riches await nations that climb out of this trough fast when global demand revives. To be there India needs to work on its export competitiveness right now. Domestic demand, as experience amply shows, is better placed to fend for itself.