The much-awaited green shoots of industrial recovery continue to elude the Indian economy. The headline number for industrial output, as measured by the Index of Industrial Production (IIP), showed a decline of about one per cent for April 2016. The IIP number, released last Friday, was a dampener to the extent that it dashed hopes of a slow revival that was triggered by industrial growth of about two per cent and 0.1 per cent in February and March, respectively. Also, when compared to the IIP growth of about three per cent in April 2015, the contraction a year later does not augur well for 2016-17. Industrial growth last year was estimated at 2.4 per cent, slowing down from 2.8 per cent in 2014-15. In the last five years, annual industrial growth has stayed below three per cent, including a decline in 2013-14. The urgency of a revival of industrial output in the current year is too obvious to be ignored.
What pulled down the April 2016 numbers was the manufacturing sector, which has a weight of over 75 per cent in IIP. A decline of over three per cent was largely fuelled by double-digit contraction in three key segments - food products and beverages, tobacco products and electrical machinery. This mirrors the continued stress captured in the numbers for capital goods and consumer non-durables, underlining the need for the government to face up to the challenges of reviving both investment and consumption demand. Contraction in the capital goods sector in April was 25 per cent, marking a decline for the sixth consecutive month and confirming how the investment outlook in the economy continues to be bleak. Similarly, the consumer non-durables sector contracted by over nine per cent in April, recording a decline for the sixth consecutive month and indicating how the economy continues to struggle with weak consumption demand.
Positive indicators came from the electricity sector, where growth was robust at over 14 per cent. At 5.7 per cent growth for the whole of 2015-16, the electricity sector did show a slowdown from the previous year's 8.4 per cent growth, but it seems to have recovered the momentum. Aiding it in contributing positively to the IIP numbers for April were sectors like gems and jewellery, telephone instruments, commercial vehicles and diesel. Not surprisingly, the consumer durables sector has kept its growth momentum, notching up about 12 per cent growth in April and showing no visible signs of deceleration over the 2015-16 growth of 11.3 per cent. With the mining sector indicating a slow revival at 1.4 per cent, the bigger challenge for India's economic recovery lies in manufacturing and in particular the capital goods sector.
Taken together, the key macroeconomic numbers for April show that the economic challenges are far from over and the recovery is likely to be a long haul. Retail inflation has inched up to over five per cent and food inflation in particular has crossed the six per cent mark, clouding prospects of an interest rate cut in the immediate future, even though that might certainly help India Inc produce more and commit higher investments. Crude oil prices are on the rise, putting pressure on fuel prices and the government's subsidy numbers. Exports too have given no comfort with a decline of about seven per cent in April. With industrial output in contraction mode, the current financial year has not begun too well for the economy, and the government ought not to relax on fiscal consolidation and further reforms that can revive both investment and consumption demand.
