Industrial sector turnaround will be key to sustained growth for India
India’s ability to remain the world economy’s primary growth engine will largely depend on the industrial sector’s turnaround, with the government projecting that manufacturing will likely expand at 9.5% in 2015-16.Updated: Feb 09, 2016, 01:22 IST
India’s ability to remain the world economy’s primary growth engine will largely depend on the industrial sector’s turnaround, with the government projecting that manufacturing will likely expand at 9.5% in 2015-16.
Latest industrial output data, however, seem to suggest that factories are not producing goods and people are not buying at 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 the April-November period compared to 2.5% a year ago.
The manufacturing sector, which accounts for 75% of India’s industrial output, grew by a tepid 3.9% during April-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% during the April-November period compared to 4.9% a year-ago.
The national income data released on Monday, however, show that gross value added in the 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 new GDP series and the information that it is conveying, not just in terms of levels but also in terms of the direction, seems very counter-intuitive,” said Ritika Mankar Mukherjee, economist and associate vice-president, Ambit, a brokerage and research firm. “ This is simply because all our qualitative and quantitative data checks suggest that GDP growth decisively decelerated in 2015-16 compared to 2014-15, while the GDP data is suggesting that growth accelerated in 2015-16.”
Business leaders, too, echoed similar views.
“The monthly IIP data, an indicator of industrial performance remains volatile, which is a matter of concern”, said A Didar Singh, secretary-general, Federation of Indian Chamber of Commerce and Industry (FICCI).
Exports, which have plunged for the past 13 successive months, remain a key concern, a fact that seem to have got the government worried.
“Declining exports seem to be predominantly determined by a decline in world demand,” the government’s Mid-Year Economic Analysis tabled in Parliament in December said. “The effect has been a drag on growth.”