Feb IIP positive but little to cheer

Riding on a low base, IIP data for February has come into positive territory. Given the contraction in core sector data for February, apprehensions were that IIP will also be negative. While better than expected capital goods performance has helped overall numbers remain positive, there is little to cheer. Besides mining and manufacturing, the energy sector has pulled down the IIP data considerably. A key area of concern is that with the February numbers coming in low, overall GDP for the fourth quarter now looks unlikely to cross 5%. If one observes the April-Feb data, the trend is quite clear. Industrial growth has not come out of its contraction phase.

The issues plaguing the sector are not short term or industry specific. A root cause for the current predicament is a drop in savings and investment coupled with high inflation and supply side constraints.Worrying growth figures in mining and manufacturing sectors have been major factors behind the dip in IIP growth the past year. Further, regulatory hurdles and lack of project clearances haveresulted in growth constraints. Overall climate of high borrowing costs, flagging demand and low liquidityhasaccentuated the problem creating an environment which is not conducive to industrial growth.

The Indian Economy is currently going through a challenging phase as GDP growth slowed to nearly a decade low in 2012-13. Domestic as well as external factors have played a part in this downfall. For industry to grow, there is need for a conducive environment in which investors, financiers and corporations can be confident of investments and returns.

Recent spate of activities around new free trade agreements, implementation of the National Manufacturing Policy, strategic partnerships around the DMIC are all steps in the right direction. However, macroeconomic linkages dictate that other areas of concern such as fiscal and current account deficit, low savings cycleand other imbalances need to be addressed in a focused manner for overall upliftment. Recovery can then be seen in a holistic inclusive manner.

(The writer is a senior director at Deloitte)