No short cuts here

Flat industrial growth reflects structural malaise

The Index of Industrial Production (IIP) has just about edged up, by a measly 0.6 per cent, in February. This is both abysmal and a far cry from the 8.2 per cent growth recorded in February 2000. The fall is far from a freak phenomenon and points more to a structural malaise than a policy failure. In April-February 2001, the index grew by 5.1 per cent, down from 6.5 in the same period last year. If the deceleration continues, the year may end with no more than 5.5 per cent growth, a good one percentage point lower than that clocked in 1999-2000. It could be argued that the situation is not as alarming as, say, in 1993-94, when the index contracted by 4.9 per cent, or in 1992-93 when it was up just 2.4 per cent. But these were years of structural adjustment for industry and lower growth was understandable. Now, the sharp deceleration raises disturbing questions about whether Indian industry really has adjusted to a liberal economic environment.
It seems that the slew of recent liberal policy measures have not had much favourable impact. The thrust on the information technology sector, through lower costs of imports, the automatic route for foreign direct investment bar a few industries, permission to foreign parent companies to hold 100 per cent equity and the dereservation of the garment sector have failed entirely to cheer industry. There is little evidence to show that lower interest rates have had a positive impact on industrial investment either. Indian industry has done little to brace itself to pierce the nexus of sluggish demand for intermediate and capital goods, high oil prices, excess capacity in some sectors, lack of adjustment in industrial restructuring and infrastructure constraints in the power, roads and transport sectors. All these continue to hold back the realisation of the potential scale economies and technological efficiencies that were hoped for at the time of the 1991 reforms. Now, the lifting of import restrictions on fully 715 items, coming on the heels of the import liberalisation of an equal number, is hardly designed to give domestic industry a shot in the arm. There seems little reason to believe that India Inc is equipped to deal with this on top of its other troubles.