Mixed signals on Index of Industrial Production (IIP): Economic Survey

Written by PTI | New Delhi | Updated: Feb 27 2013, 23:39pm hrs
Index of Industrial Production (IIP) presents a mixed picture of sluggishness bottoming out as well as continuing for a little longer period, the Economic Survey 2012-13 said today.

The industrial production measured on IIP made a smart recovery in October 2012 by showing a growth of 8.3 per cent, but entered into negative zone in the subsequent two months.

"Notwithstanding a pick-up in industrial growth observed in October 2012, there are mixed signals on whether the slowdown phase has bottomed out or the current sluggishness would persist a little longer," the Survey said.

Overall industrial performance, continued to moderate from first quarter of 2011-12 with growth turning negative in first quarter of 2012-13, before improving to 2.1 per cent in October-December quarter of 2012-13.

The Survey, however, said there are at least two factors which suggest some optimism on the industrial front.

Firstly, data on frequency distribution of products/product groups, which constitute the IIP, indicate the number of products with a negative growth has declined from 182 in fourth quarter of 2011-12 to 160 in October-November, 2012.

The second factor showing optimism is the RBI's business expectation index, which recorded moderately positive growth in third quarter of 2012-13, after persistent negative growth for the previous six quarters.

The index tracks IIP growth fairly closely and this suggests a possible bottoming out of IIP growth moderation.

As per the survey, latest data indicate the growth of the sector could remain moderately positive at around 3 per cent for the current year.

Growth in IIP during April-December stood at 0.7 per cent against 3.7 per cent year-on-year. The survey said IIP growth remains vulnerable to several domestic factors and external shocks.

The survey said: "Infrastructure and energy constraints, decline in demand for India's exports, and fragile recovery in investment are the risk factors."

Analysing the sector, it said besides weak investment climate, industrial sector performance remained subdued due to infrastructure bottlenecks.

Also, India has not improved significantly in terms of the ease of doing business and ranks very low in comparison to other industrial peers, it added.

It further said sourcing of finance at competitive costs is another major constraint for both the organised and the unorganised MSME enterprises.

The moderation in industrial growth, particularly in the manufacturing sector, is largely attributed to sluggish growth of investment, squeezed margins of corporate sector, deceleration in the rate of growth of credit flows and the fragile global economic recovery.