Industry on the mend

Is the factory output index converging with the green shoots narrative? After the release of the national accounts series with 2011-12 as base, the country was faced with two dissimilar sets of numbers: the GDP series showing 6 per cent industrial growth, as against the index of industrial production (IIP) registering a growth of 2.8 per cent in April-February 2014-15. Now, with the February IIP at 5 per cent, there are more definite signs that a revival is under way. While it is well known that the IIP coverage is patchy and its readings volatile, the trend indicated by it cannot be discounted. Meanwhile, the new GDP series has begun to be questioned by some economists. The possibility that the IIP trend — a feeble pick-up towards the end of 2014 — is more plausible than the new GDP series-linked story, which dates the revival back by at least a year, cannot be ruled out. It tells us that despite a growth rate of 2.8 per cent in 11 months of 2014-15, basic and capital goods have grown at 7.4 per cent and 6 per cent respectively. A drop in the percentage of stalled projects, cited in the Economic Survey, could have contributed to a pick-up. It is the slump in consumer goods (minus 3.7 per cent in April-February 2014-15) — a reflection of indifferent corporate performance — that has brought down the overall industrial growth figure.

The Budget has set aside an additional ₹70,000 crore for capital expenditure, which can be expected to revive consumer demand. Remarkably, Moody’s has revised India’s credit rating outlook from ‘stable’ to ‘positive’ despite the medium-term fiscal consolidation plan having been relaxed. This reflects a confidence in the government’s commitment to pursue reforms such as GST and privatisation, despite the political opposition to restructuring factor markets. The outlook of overseas observers (Morgan Stanley, for example) also suggests that there are no major downside risks to growth. Oil prices are likely to stay benign, as observed by the IMF, in the foreseeable future. The chief worry is agriculture, for its capacity to impact both growth and inflation. In the event of any weather-related shocks, the Reserve Bank of India should not repeat its mistake of earlier years of tightening rates to control food prices. That can scuttle the process of industrial recovery.

For the private sector to get back to investing, the government must first proceed along less contentious areas. The revamp of bankruptcy laws and a creative approach to asset reconstruction will help the private sector snap out of its debt overhang. A restructuring of the PPP model brooks no further delay. The Chief Justice of India has rightly urged the courts to dispose cases fast; judicial delays are one of the biggest hurdles to ensuring that contractual obligations are met. In sum, the Centre should stick to its script; the results shall follow — and show up even in our fickle statistics.

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