JOIN USThe Index of Industrial production (IIP) numbers for September have disappointed even those who were expecting a poor performance from the industrial economy. The latest IIP growth at 1.9 per cent marks a dismal two-year low. It has been continuously sliding in the last few quarters and correspondingly industrial growth has fallen from 8.6 in the third quarter of last year to 3.1 per cent now. Even the low IIP of September may be revised further downwards as was done in the case of the August numbers. Industry constitutes about as fifth of the country’s GDP and it has an edge over other sectors from the point of view of employment generation and other parameters. Its slow growth will therefore have a cascading effect in the entire economy.
Sectors like capital goods production, which has a direct correlation with investment, and mining have performed badly and they were mainly responsible for dragging the index down. It is of serious concern that sectors where small and medium industries have a good presence have performed very badly. The only sectors which withstood the negative trend were power generation and consumer durables. They do not help much in the context of an overall decline. The persistent fall in the IIP is a result of the lack of policy initiatives on the part of the government and the series of interest rate hikes by the Reserve Bank of India. The RBI perhaps had no better option in the face of rising inflation but the government has not given it much support. The apex bank has probably made the last of its policy interventions and the credit situation might ease in the coming months. But the government has to act more purposefully.
The falling IIP has to also be seen in the context of other poor indicators. Export growth has fallen precipitously from 82 per cent in July to 10.8 per cent and to a one-year low. Imports have grown faster and the trade deficit may touch worrisome levels very soon. Tax collections have slowed down. All these are pointers to a general slowdown. Even the revised targets for GDP growth may be missed. While the current financial year may see a growth of less than 8 per cent, target a 9-10 per cent growth next year also seems difficult to achieve. The external environment is not supportive, but the problem is more internal than external.