Better numbers

Sustained IIP uptick would need redoubled effort

The October numbers for the Index of Industrial Production (IIP) published last week were a pleasant surprise. After hovering in the low single digits for much of the first half of the current financial year, industrial output growth for October was measured at a five-year high of 9.8 per cent. Manufacturing, which accounts for three-fourths of the IIP, grew in double digits at 10.6 per cent, the highest since June 2011. The government has quickly taken credit for the rosy numbers claiming that the economy is responding positively to the policy measures taken in the past few months to revive growth. The numbers are also being cited as validation for the earlier government claims of an economic upturn based on healthy growth in indirect tax collections. Now that manufacturing growth too has seen a healthy uptick, the spurt in revenue collections seems to have been explained. All this may be true. But no assessment of the October numbers of IIP would be appropriate without judging them against the unusual dip in industrial performance in the same month of 2014, when industrial output declined by close to three per cent and manufacturing output fell by even a higher margin of 5.6 per cent. Celebrations over an industrial revival would therefore need to be tempered by the fact that the statistical base effect of October 2014 also had a significant role to play in throwing up the healthy numbers for the same month this year.

That apart, the trajectory of industrial output in the past seven months has been by and large positive. Barring blips caused in some months, overall industrial growth in the April-October period of the current financial year is close to five per cent, compared to around two per cent in the same period of 2014-15. Manufacturing too has seen a steady improvement; its seven-month growth this year is estimated at around 5.1 per cent, compared to only one per cent growth in the same period last year. Capital goods continues to clock impressive growth at 16 per cent for October and nine per cent for the April-October period this year, compared to a decline of over three per cent and growth of 4.6 per cent, respectively, in the year-ago periods. Much of it, though, could be due to the healthy growth in sales of commercial vehicles and tractors in this period. The weakness in consumer non-durables - essentially the fast-moving consumer goods sector - is, however, still a worry, even as consumer durables continue to grow at a healthy double-digit rate. The latter is borne out by an improvement in sales of passenger cars and two-wheelers.

It must be noted that the benefits of a steady decline in oil prices and an increase in public investment in roads in particular are clearly showing in the growth witnessed so far in industrial output. The challenge is to sustain the growth already recorded as the advantages of lower oil prices wear off and the government's spending capacity comes under strain, thanks to the imperatives of a tougher fiscal consolidation target next year. The recommendations by the Seventh Central Pay Commission for increased wages for government employees will take effect from January, and this might sustain the consumption-led growth somewhat longer even as it would put more pressure on government finances in 2016-17. The government's focus, therefore, has to be firmly on policies that can help create better infrastructure by ensuring increased investment, greater efficiencies and higher productivity in the long run. The Union Budget that is due to be presented in about ten weeks from now would do well to take note of these lessons and the policy imperatives of sustaining the current growth momentum.