Core sector slump: the gloom grows

Indian economy

The Indian economy is staggering into a standstill mode. There’s no respite from the mess that the Modi government has induced across economic sectors. Inaction, coupled with lack of ideas to impart fresh momentum, seems to have allowed various sectors to slide, with no turn-around in sight. The government’s economic managers seem clueless. Growth in the eight core sectors of the economy hit a 50-month low of 0.2% in June. Given that the core sectors, including oil and gas, power, coal, steel, cement and fertilisers, has a 40.27% weightage in the index of industrial production, the overall industrial output for the month is bound to be lower, too. If one were to consider the entire first quarter data, there seems to be hardly any hope of revival. The core sector slide has been emphatic, with adverse implications, given that last June these very eight industries posted a decent 7.8% growth.

Even if one were to consider sequential numbers, core sector performance in June has to ring alarm bells for Finance Minister Nirmala Sitharaman and new Finance Secretary Rajeev Kumar as the May 2019 figures were pegged at 4.1% after downward revision. Barring steel and electricity, six other core sectors have registered negative growth. Some of the energy related sectors, like crude output, have been in a free fall for over a year now, with no trend reversal in sight. Economists’ worst fears of industrial output going into negative zone may come true if course correction is not initiated. If this trend continues, then achieving even 7% economic growth this fiscal looks daunting. The implication is that industrial workers would take the first hit, with pink slips handed out all over.

Given that the government is betting big on infrastructure growth, tackling issues in steel and cement industries, coupled with finding solutions to the widespread real estate imbroglio, could partially help reverse the slowdown. Second, automobiles growth revival would help revive industry sentiment. In the last one year, every car and two-wheeler maker has reported decline in sales. In June alone, nine out of 11 automobile companies experienced double-digit decline in sales. In the first quarter of this fiscal, the decline seems to have spread across, with 15–20% dip in sales. Clearing the bottlenecks, making available low-cost credit to both consumers and companies with staggered repayment options, could help clear the big backlog in automobile inventory. Thirdly, the oil and gas sector is crying out for big investments apart from a correction in pricing aberrations. Fourthly, an inter-ministerial mechanism must be put in place to address inter-sectoral issues. The government cannot remain a silent spectator, it must act now.

 

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