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Industrial growth data derived from the newly released Index of Industrial Production (IIP) series show India Inc as having experienced a full-blown ‘recession' – rather than a mere ‘slowdown' – in the aftermath of the global financial crisis.
The old IIP series, with 1993-94 as its base year, had revealed a sharp dip in industrial output growth after the collapse of Lehman Brothers in September 2008 – and which continued till May 2009. During this eight-month period, the year-on-year growth rates fell to as low as 0.21 per cent in February, but remained in positive territory all through.
The picture, however, changes for the worse with the revised IIP series, constructed using 2004-05 as the base. Industrial growth rates, in this case, not only plunged, but actually turned negative and ruled so for seven months in a row, from December 2008 to June 2009.
Textbook recession
That makes it nothing short of a recession, technically defined in terms of a production decline happening over two or more consecutive quarters. In other words, when the definitive history of this period is written, it would be described as a recessionary phase for Indian industry. What was witnessed was not simply a growth slowdown, as is commonly believed.
Moreover, growth did not really pick up till November 2009 – as against June in the old IIP series – and even the recovery that followed was not so dramatic. The revised series, interestingly, does not also indicate any growth moderation setting in after October 2010, which has obvious implications for the conduct of monetary policy. For the latest month of April 2011, the year-on-year IIP increase works out higher in new series (6.34 per cent) vis-à-vis the old (4.38 per cent).
The revised IIP series largely uses output data from the 2004-05 Annual Survey of Industries for selection of products and assigning of individual item weights. The resultant product composition and weighting diagram is seen to be more representative of the country's current industrial structure than that based on the 1993-94 series. There has been an increase in the total number of items covered, too, from 538 to 682.
In and Out
The major products in the old series that do not figure in the 2004-05 IIP basket include typewriters, sewing machines, zip fasteners, springs, tape recorders, TV receivers, monobloc pumps, asbestos cement sheets, electrolytic capacitors, ampicillin, penicillin and sulpha drugs. The exclusion of these items – 42 in all – has been on account of their production not being significant enough in today's context.
On the other hand, 135 new items have been added to the updated IIP series. The important ones here are newspapers (the production of which did not form part of the old series), colour TVs, antibiotics and its preparations, gems and jewellery, steel structures, apparels, synthetic yarn, purified terephthalic acid, propylene, heat exchangers, milk powders and rice.
“The new IIP series shows we did have a recession that was quite deep. And given its larger and more representative commodity basket, you can assume the growth rates to be accurate than the earlier estimates,” the Chief Statistician of India, Prof T.C.A. Anant, told Business Line .
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