The Index of Industrial Production released last Thursday showed that output grew by 6.4 per cent in July 2002. For the first four months of 2002-03, cumulative growth was 4.7 per cent, double of that in the same period of last year. During 2001, manufacturing output slid from 4.7 per cent in January to below 3 per cent in most months with lows of 1.8 per cent in May and 1.4 per cent in September.

On the contrary, year 2002 has shown some signs of recovery, albeit from the near comatose to the merely ambulatory. In January 2002, manufacturing output growth crossed 4 per cent, stayed at about 3 per cent in February and March, hovered around 4 per cent through April to June and increased to 5.7 per cent in July ? the highest level in 20 months.

Could this indicate that the long drought in manufacturing has at long last ended and improved economic circumstances are at hand? It does not seem so. In the first half decade of economic reforms, not only was aggregate growth for industry strong, but its distribution was even. That is, very few industrial sectors had performed much below the average. Thus, in 1995-96, of 17 two-digit industry groups, as many as nine grew faster than the mean value of 14 per cent, while only one grew at a rate that was less than one-third of the mean.

From 1998-99, as overall manufacturing growth slackened to 4.4 per cent, the distribution also became increasingly uneven, with as many as seven of the 17 industrial groups growing at less than one-third of the mean. This trend continued in all subsequent years. For April-July 2002, while manufacturing output grew at an annualised rate of 4.3 per cent, only six of the 17 two-digit industry groups did better than the average, while as many as seven grew by less than one-third of this average.

In other words, whatever output growth we are getting is coming from only a few industry groups. Only a small number of industry groups, accounting for about half of manufacturing output in the base year (1993-94), is generating the observed growth ? with the small output expansions and negative growth in the rest cancelling each other out.

Two implications thus emerge. First, if significant growth touches only half of manufacturing output, postulating an industrial recovery per se is surely excessively sanguine. Second, only four industry groups, namely beverages, transport equipment, basic chemicals and leather products, accounting for 27 per cent of base year output, have had a record of above average growth in at least four of the previous five years. Five others, basic metals, machinery, cement, petroleum products and metal products, accounting for another 38 per cent of base year output, have had above average growth in at least two of the previous five years. Throw in ready made garments that has done very well in 2002, but poorly in all other years since 1998-99, and you basically have at most two-thirds of manufacturing industry demonstrating much evidence of output expansion.

Thus not only has manufacturing output expansion been weak, but the base of growth has been very narrow. Some industries have consistently shown negative and marginal growth ? reflecting on the fact of a significant slice of Indian industry seemingly at a dead end. This we also know from the state of finances of companies engaged in manufacturing. The segment of Indian manufacturing companies that are reasonably profitable is even narrower than that which is capable of expanding output, and within that, those companies able to bring in new capital for expanding capacity and increasing efficiency is smaller still.

Weeding out the dysfunctional is an essential component of all natural processes and industry is no exception. The reluctance of the government to allow restructuring of businesses and change in ownership and management, has dragged out the rejuvenation of Indian manufacturing enterprises and is mostly responsible for the peripatetic growth that the sector registers today, with its concomitant implications for the economy at large.

The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)