Industrial production rebounding with manufacturing push

Written by Sushim Banerjee | Sushim Banerjee | Updated: Jul 31 2014, 07:06am hrs
Industrial production in the first two months of FY15 has shown a remarkable recovery. From a negative growth, it is currently growing at 4% with manufacturing, the primary component, increasing at 3.7%. The May figures augur well for brighter days in the coming months.

Since the report has appeared a day after the Budget announcements, the latest picture may not be an off-shoot of the budgetary pronouncements, but is more indicative of the feel-good factor that is still mildly prevalent. What is reassuring for the manufacturing sector is the reasonably good growth in capital goods (9.3%), other transport (10.3%) and furniture manufacturing (17.6%). In keeping with growth of electricity generation (8%), the production of electrical equipment has moved up by an amazing nearly 50% in the two months of the current year which is also reflected in the imports of nearly 80,000 tonnes of CRGO and CRNO in Q1FY15.

Obviously, the negative and subdued growth in the last few months made the positive output in the current period appear higher in terms of rate of growth, but the data provides sufficient reasons for a comeback of a stable and sustainable growth path for the industry. But to say that it would rise on its own and without the support, nurturing and tangible stimulus by the government is probably taking a simplistic view of its potential. The Budget has attempted to declare few policies that need to be distinguished from specific relief measures.

The rise in customs duties in SS by 2.5% would satisfy a long-standing demand of the ailing sector. The gain in the falling trend in global coking coal prices would be partially neutralised by the rise in BCD of 2.5% on coking coal and same on metallurgical coke. The drop in BCD on ships for breaking by 2.5% (from 5%) and a similar drop in steel grade limestone and dolomite would help steel producers to reduce cost of inputs. A part of this benefit (on total cost concept) may have to be passed on to the consumers to pep up the sagging demand. Overall, the Budget may not have met many of the detailed wish lists of the specific sectors.

But this apparently simplistic annual income and expenditure statement also contains a few long-term policy statements aiming at resolving the high risks being faced by the industry. Banks have already been advised to borrow from the market and lend it to long-term infrastructure projects to meet the viability gap in funding of high-value projects, including the held-up projects in power, steel and roads. The enhancement of the FDI cap in defence equipment and insurance is a test case before relaxing the same for a few other sectors which are starved of long-term funds. The governments decision to participate in equity of stalled projects in roads via the low-cost funding from FDI or the pension funds and doing away with the PPP mode may provide a big relief to the investors. The steel industry has been assured that many controversial clauses in the MM&DR Bill would be further discussed with the industry. The infrastructure leasing companies would be given special thrusts. Creation of 100 smart cities, tier-2 and tier-3 cities to be connected by airport, affordable and low-cost houses for every household by the next few years are all laudable concepts. Implementable mechanisms must be activated immediately to translate the dreams into reality.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal