Slow pace of reforms, delayed implementation of projects, and policy uncertainty prior to elections has adversely impacted business confidence-Crisil

Index of Industrial production failed to show any signs of a broad-based recovery in January. Manufacturing output fell for the fourth consecutive month as rising exports failed to cushion a sustained weakness in domestic consumption and a standstill in investments. Between April-January FY14, overall manufacturing output fell by 0.4 per cent (year-on-year), even as output of export-oriented manufacturing industries (textiles, wearing apparel, leather products, refined petroleum, chemicals and other transport equipment) grew by 8.8% over the same period.

Household consumption demand has failed to pick up despite the expected boost to rural incomes from an above normal monsoon. According to advanced estimates released earlier, India's private consumption growth slowed to 4.1% in 2013-14 from 5.0% in the previous year. High interest rates, high inflation and weak income growth has weighed down on consumer goods output, which has fallen by 2.7% in the fiscal so far.

Also at the core of the waning performance of the industrial sector is a sharp slowdown in investments. Slow pace of reforms, delayed implementation of projects, and policy uncertainty prior to elections has adversely impacted business confidence. Capital goods output fell by 4.2% in January despite a very weak base. There is an urgent need to kickstart the investment cycle by speedy implementation of projects recently cleared by the Cabinet Committee of Investments.

On a positive side, recent policy efforts at reviving the mining sector are beginning to bear fruit. Mining output, which fell by 2.3% in FY13 and by 2.5% in H1FY14, clocked positive growth for the third consecutive month in January.

Mining ban in Karnataka was lifted in mid-2013 and resolution of mining issues is underway. Going ahead, as firms obtain relevant clearances and resume production, mining output is likely to improve further and provide impetus to a recovery in growth.

The growth of the eight core infrastructure industries also slowed to 1.6% in January from 2.1% in December. The deceleration was led by a decline in output of coal (-0.7%), natural gas (-5.2%) and refinery products (-4.5%). A sustained revival in coal and gas output will be critical for alleviating supply-side constraints pertaining to fuel and power shortages in the economy.

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