Problems persist

The quick estimates of the index of industrial production (IIP) for the month of May have shown some improvement over the figures for previous months, but it is too early to conclude that they mark a turnaround or that the negative indicators have bottomed out.

Even the veracity of the IIP figures is still not certain because they may be revised as in the case of April when the IIP went down to a negative 0.9 per cent from an initially estimated 0.1 growth.

That aside, the small 2.4 per cent growth of the index seems to be better performance only in relation to the contraction of 3.2 per cent and 0.9 per cent  in March and April respectively. It is way below the 6.4 per cent growth of the same month last year, which was then considered inadequate.

Disaggregated figures show that the weaker areas of the economy have continued to show weakness. The only areas of better performance were surprisingly power, which grew by 5.9 per cent, and consumer goods which went up by 4.3 per cent.

But the uncertainty about the monsoon may adversely affect consumer demand in the coming months. Manufacturing, which forms 75 per cent of the IIP, did only come out of the previous month’s negative territory, and the important area of mining contracted by 0.9 per cent and capital goods output declined by 7.7 per cent. Problems of policy, clearances and legal hurdles have haunted the mining sector, which has a high weightage, and it seems the sector will continue to be in trouble.

Capital goods output is the best indicator of investment and capital formation and the continuous decline of the sector does not inspire confidence about an immediate pick-up in the economy. Segments like textiles and machinery and equipment have showed reasonably good growth and if the trend persists it can help the capital goods sector to look up in future. But that is a big if.

What the IIP figures show is that the concerns about the economy are still real and they will continue to be serious. It was the poor performance of the industrial sector that had accounted for the steep fall in the GDP rate last year. If industry, and manufacturing have to improve, the government has to make a difference with policies, more effective administrative action and more investment-friendly decisions.