<div>The shrinking of the Index of Industrial Production (IIP) for the second consecutive month in August by 0.7%, after a 2.5% decline in July, has sent worrisome signals about the growth of the economy. The IIP is a measure of factory output and its contraction shows that the economy is slowing down. The average for the fiscal year till now is a negative 0.3%. This should be compared to a growth of 4.1% during the same period last year, which itself was not considered high. Exports have also fallen in relative and absolute terms for 20 months. In between, there was a rise in one month but that did not change the general trend. The worsening export performance and the contraction of the IIP together show that the economy may be losing momentum instead of moving forward. <br /><br />All the components of the index have performed poorly in August. The poor performance is notable in three of the most important areas of the economy – manufacturing, capital goods and power generation. Capital goods shrank by a whopping 22%, falling consecutively for the 10th month, and manufacturing by 0.3% while electricity just about saw a 0.1% growth. The poor order positions indicated by many companies and production shortfalls confirm this trend. Even consumer durables, which had seen a good growth of 5.9% in July, saw a slower growth of 2.3% in August. These are reasons for concern, especially because domestic consumption was expected to give a fillip to the economy. Higher farm output and better farm incomes resulting from a fairly good monsoon in many states and the pay hikes for government employees are still expected to give a boost to consumption but the sector is yet to pick up.<br /><br />The IIP figures show that fresh investments are still not being made in the industrial production sector. Another indicator of this is the sluggish growth of credit offtake from banks. There are also indications that many companies may report only subdued profits for the quarter ended September. While the domestic situation has not improved, exports are in doldrums because of a weak global demand and continued fall in commodity prices. All these are acting as dampeners for the economy. There is a view that IIP numbers are not realistic because they are calculated on a 2004-05 base, and when a new IIP scheme with 2011-12 as the base comes into being, the figures will look better. But this is not convincing because many other indicators also point to a slowdown in the economy. Therefore, the message from the IIP decline should be taken seriously.</div>
<div>The shrinking of the Index of Industrial Production (IIP) for the second consecutive month in August by 0.7%, after a 2.5% decline in July, has sent worrisome signals about the growth of the economy. The IIP is a measure of factory output and its contraction shows that the economy is slowing down. The average for the fiscal year till now is a negative 0.3%. This should be compared to a growth of 4.1% during the same period last year, which itself was not considered high. Exports have also fallen in relative and absolute terms for 20 months. In between, there was a rise in one month but that did not change the general trend. The worsening export performance and the contraction of the IIP together show that the economy may be losing momentum instead of moving forward. <br /><br />All the components of the index have performed poorly in August. The poor performance is notable in three of the most important areas of the economy – manufacturing, capital goods and power generation. Capital goods shrank by a whopping 22%, falling consecutively for the 10th month, and manufacturing by 0.3% while electricity just about saw a 0.1% growth. The poor order positions indicated by many companies and production shortfalls confirm this trend. Even consumer durables, which had seen a good growth of 5.9% in July, saw a slower growth of 2.3% in August. These are reasons for concern, especially because domestic consumption was expected to give a fillip to the economy. Higher farm output and better farm incomes resulting from a fairly good monsoon in many states and the pay hikes for government employees are still expected to give a boost to consumption but the sector is yet to pick up.<br /><br />The IIP figures show that fresh investments are still not being made in the industrial production sector. Another indicator of this is the sluggish growth of credit offtake from banks. There are also indications that many companies may report only subdued profits for the quarter ended September. While the domestic situation has not improved, exports are in doldrums because of a weak global demand and continued fall in commodity prices. All these are acting as dampeners for the economy. There is a view that IIP numbers are not realistic because they are calculated on a 2004-05 base, and when a new IIP scheme with 2011-12 as the base comes into being, the figures will look better. But this is not convincing because many other indicators also point to a slowdown in the economy. Therefore, the message from the IIP decline should be taken seriously.</div>
