Last Friday, the Ministry of Statistics and Programme Implementation (MoSPI) released its estimates for output of six infrastructure industries for the month of July 2003. The figures indicate that these industries grew by a mere 2.6 per cent, compared to 10.2 per cent in July 2002. In the midst of the well-being generated by a comfortable balance of payments situation resulting in a stronger than expected rupee, buoyant stock prices, declining inflation, relative peace on our western borders, not to speak of bountiful monsoon rains, this bit of news is a sure damper.
It is nobody?s case that the MoSPI release of what they term ?core? sector output growth is a particularly reliable guide for overall industrial growth. However, the MoSPI and the Index of Industrial Production (IIP) numbers is not totally unrelated either. Thus in July last year, when ?core? sector growth was reported at 10.2 per cent, the IIP growth (revised) for the month turned out to be 7.1 per cent, a significant improvement over the 4.5 per cent of the previous month. ?Core? sector growth for June 2003 was estimated at 4.7 per cent (previous year 7 per cent), which means that this is the second month in succession when the MoSPI estimates could be interpreted to indicate a slackening pace of ?core? industrial activity. Furthermore, there is a world of difference between 4.7 and 2.6 per cent.
So, what is up? Has everybody ? from those who have expectations of a modestly better year in 2003-04, to those who are more euphoric, to those who persist in the antediluvian idea that the monsoon drives the Indian economy ? got it wrong? This columnist does not think so. Now, the so-called ?core? sector is a central planner?s dream of the really important things in life ? crude petroleum and refinery products, coal, electricity, steel and cement. Once, except for cement, all this used to be in the State sector ? which made the task of data compilation easier ? and the cement industry association always maintained up-to-date records. Today, of course, in all of these activities private sector activity is becoming increasingly important. Hopefully, the MoSPI has been able to keep pace.
In the April-June quarter of 2003-04, the IIP indicated a growth of 5.3 per cent. The ?core? sector index had reported one of 4.1 per cent. In the corresponding quarter of 2002-03, the IIP showed industrial growth at 4.3per cent, while the ?core? sector index had estimated it to be 6.2 per cent. Thus sizeable variation, and even in opposite directions is possible, as indicated from the record.
But there are things which are difficult to understand. What does the absolute decline of 1.9 per cent in power generation mean? Now, it is a fact that power generation numbers have been showing a decelerating trend. Thus, at the end of the ?90s, the rate of growth of power generation used to be higher than manufacturing in the IIP. In more recent years, it has been the other way round. There is no reason to believe that load shedding has become worse in the last couple of years compared to the late ?90s. Hence, it must be the demand for power that has slowed, perhaps due to some progress in curbing power theft. Each year we are adding 4 to 5 per cent to our installed capacity. The power load factors (PLF) available up to December 2002 shows consistently rising PLF ratios ? that is higher capacity utilisation. Then, how on earth did power generation turn negative in June 2003? The MoSPI has the unfortunate governmental advantage of being sphinx-like: put out numbers without any explanation ? an exercise in opacity.
We thus have little recourse, but to fall back on more traditional indicators of economic activity. Bank finance to business continues to rise at a rate of over 15 per cent on year-on-year basis, notwithstanding proportionately higher funding of business from mutual funds and overseas sources. The production and sale of transport vehicles remain strong. And the buoyancy in financial markets is never as completely divorced to what is happening on the ground, as can and does happen with sphinxes in government.
The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)
