INDIA’s industrial output expanded, after three straight months of contraction, by an anaemic 0.1 per cent year-on-year, in January, according to index of industrial production (IIP) data released by the Central Statistics Office on Wednesday. The cumulative IIP growth so far this fiscal year stands at a grand zero per cent. And while there can be some cheer because the mining and electricity sectors have expanded 0.7 and 6.5 per cent respectively, the manufacturing sector — which accounts for almost 80 per cent of the IIP — has shrunk, for a fourth month in a row, by 0.7 per cent. The hard truth is that the manufacturing sector, which has been a country’s ticket to achieving middle-income status, has contracted 0.4 per cent this fiscal. As worrying as this is in itself, the use-based disaggregation of the index paints a grim picture for the future.
The capital goods sector shrank 4.2 per cent and consumer durables 8.3 per cent. Within these sectors, the boiler, earth-moving machinery and commercial vehicle sub-sectors, among others, all experienced sharp, over-20 per cent contractions. Traditionally, capital goods and consumer durables sectors are relied upon as indicators of the investment climate and long-term spending plans of businesses and households. For example, because commercial vehicles are indispensable for a wide range of industries, this sector’s growth pattern broadly indicates the perception of future prospects and expansion plans. But even if domestic demand is subdued, hopes that the recovery in Western economies could provide some relief were dashed when the February export data were released earlier this week. Exports are also down by 3.7 per cent, year-on-year. It seems that the export benefits of a depreciated rupee are wearing out — perhaps due to a pass through into input costs.
If the next government is to translate the Rs 6.6 lakh crore of cabinet-approved projects into actual investment, it will have to revisit and restructure the terms of the projects, as was done recently by the Central Electricity Regulatory Commission for the Tata and Adani ultra mega power projects in Mundra. Road projects are similarly begging for relief. New project terms are needed to reflect the new economic realities.