There is a growing buzz about an economic recovery, even if it is being qualified by various alphabetic attributes. The relatively good performance of equity markets is perhaps the main driver of the new optimism, but there have been some other signs also—car and two-wheeler sales and home loan disbursements, for example—suggesting this. The recent survey of its associated councils (Ascon) by the Confederation of Indian Industry (CII) also indicates a slight revival in manufacturing during the January-March quarter. Against this generally positive backdrop, the numbers for the Index of Industrial Production during March 2009 pour some cold water on the recovery view. The overall index declined by 2.3 per cent over March 2008, while the manufacturing sector, which comprises about 80 per cent of the index basket, declined by an even sharper 3.3 per cent. This is the largest decline in both indices since they turned negative a few months ago, and takes the growth of the overall index for 2008-09 to 2.4 per cent, down from 8.5 per cent during 2007-08. The manufacturing sector grew by 2.3 per cent during 2008-09, compared to 9 per cent during the previous year. At least as far as this indicator is concerned, the momentum still appears to be strongly negative, with no signs of stability, let alone a turnaround. Is the buzz, therefore, more wishful thinking than rooted in reality?
The growth patterns across industry segments underscore how widespread the negative tendencies still are. Only five of the 17 industry segments registered a positive growth rate during March. For the whole year 2008-09, seven of the 17 experienced declines. The main drivers of the slowdown, the decline in exports and the domestic business cycle, were certainly very much in evidence in March. Textiles, Textile Products, Leather and Leather Products and Other Manufacturing Industries, all quite export-intensive, declined. Metals, Metal Products and Machinery & Equipment, all sensitive to domestic construction and investment activity, also declined. The one exception to the pattern was the Transport Equipment segment, which grew by 7 per cent in March, taking its growth rate for the whole year to 2.2 per cent. The other strong exception to the negative pattern was the use-based category of Consumer Durables, which grew by a striking 8.3 per cent in March and 4.4 per cent in 2008-09, in sharp contrast to declines of 2 per cent and 1 per cent in the previous year. This can probably be attributed to the impact of the payment of arrears of salaries to government employees, and will come as a relief to producers, because the implementation of the new scales is still being rolled out across state governments and state-owned enterprises. One point to highlight is that, like in many previous months, a particular industry segment appears to have a disproportionate impact on the overall growth number. This time, it was the Food Products segment, which declined by almost 36 per cent.
Such numerical aberrations notwithstanding, the fact remains that industry is still very much in the doldrums. The impact of the fiscal and monetary measures (over and above the salary hikes) is not yet visible. It may become so over the next few months, but it must be emphasised that there is little indication of any turnaround at the macroeconomic level. For the moment, a recovery appears to be more wish than fact.