The recovery in the economy continues, but haltingly so, it would seem, given how industrial output for May grew at just 2.7% y-o-y, well below April’s 3.4% y-o-y. Demand for consumer goods remains very subdued, as seen in the contraction in the segment, of 1.6%; indeed, in the last 12 months, the segment has expanded only in three months. The near absence of purchasing power and consumers’ lack of confidence has been reflected in the lacklustre sales of automobiles, which have reported a year-on-year growth of less than 3% for six months now; that the consumer durables segment contracted 4% y-o-y in May ties in with this. The encouraging growth in electricity and basic goods is somewhat at odds with the poor increase in manufacturing which was just 2.2% y-o-y. As for capital goods, the data tends to be lumpy but after exhibiting a very robust trend between November and April, when it grew between 6% and 12.4%, the segment disappointed in May, growing at just 1.8% y-o-y.
Nevertheless, as CMIE data has shown, the value of stalled projects moderated to around Rs 80,000 crore between April and June from R1.1 lakh crore in the corresponding period of the previous year, and while the number of such projects has gone up, it would appear many of the larger projects are taking off. Also, the April-June quarter marked the fourth consecutive quarter in which the announcements of new project proposals were higher. The order books of most engineering firms didn’t see any meaningful growth in the three months to March and it would be interesting to see how strong order inflows have been in the June quarter. To be sure, the poor traction in loans from the banking sector doesn’t suggest any revival in capex—credit off-take actually shrank between April and June and bankers say there is no pipeline of greenfield ventures, except in the renewable energy space. This is probably because many projects have been abandoned since they are no longer viable in the weaker economic environment. Also, few companies have balance-sheets strong enough to be leveraged; most firms are strapped for cash, as the weakening interest coverage ratio suggests. It could be a while before meaningful capacity addition resumes.