A 'durable' recovery?

Consumer durables lead a lopsided turnaround.

The April numbers for the Index of Industrial Production (IIP), released on Friday, show that the sector has returned to positive growth after two successive months of decline. Of course, the growth rate is still low but, amidst rising expectations about an economic recovery, has reinforced these perceptions. And, the numbers do suggest that the industrial sector, whose growth has been most adversely affected by the events of the past several months, is climbing out of the trough. Electricity production, which contributes about 10 per cent to the index, grew by over 7 per cent over April 2008, compared to just 1.4 per cent growth during all of 2008-09. The manufacturing sector, which accounts for about 80 per cent of the index, grew by a much more modest 0.7 per cent. However, this rate masks a wide variation in the growth rates across the 17 industrial segments that comprise the sector.

As many as 11 out of the 17 showed positive growth rates, which is a substantial improvement on the five of the previous month. Out of the 11, Wood and Wood Products, which grew by over 31 per cent, and Wool, Silk and Other Manmade Textiles, with over 12 per cent, were the fastest growing sectors. Neither of these has a particularly high weight. Of the larger segments, Non-metallic Mineral Products, predominantly cement, showed an impressive growth of over 10 per cent, while Machinery and Equipment and Transportation Equipment grew by 9 per cent and 6.3 per cent, respectively. The former indicates that construction activity is showing signs of revival. The real significance of the latter is perhaps visible in the use-based category of Consumer Durables, which grew by 16.9 per cent, compared to a mere 3.2 per cent in April 2008 and 4.4 per cent during all of 2008-09. This category has been steadily gathering momentum over the past few months, against the general trend. The most obvious explanation is that government employees are beginning to spend their arrears payments on appliances as well as vehicles and, perhaps, housing. The stabilisation in GDP growth is clearly attributable to higher spending by government. This appears to be spreading its way through the economy, indicating that the fiscal stimulus represented by the implementation of the Sixth Pay Commission is truly coming to the rescue of the industrial sector, and also the economy as a whole.

This should not serve to gloss over the fact that many industrial segments are still in the doldrums. Segments like Cotton Textiles and Textile Products continue to suffer from the recession in exports. Leather and Leather Products, which declined by over 12 per cent in April, is amongst the worst hit by the global slowdown. Clearly, some segments of the industrial sector are benefiting far more from the incipient recovery than others. This lopsided pattern is likely to persist for some time, a factor that the government needs to take into account while finalising its Budget proposals.