Industrial growth for the month of July 2016 at 2.4% lower than the corresponding month of last year makes it the worst performing month among the first four of the current year.
All government reports on the state of the industry indicate a challenging period for the economy. Industrial growth for the month of July 2016 at 2.4% lower than the corresponding month of last year makes it the worst performing month among the first four of the current year. Once again growth in the industry has been pulled down by slow growth in the manufacturing sector (more than 75%) that is down by 3.4% compared to last year.
Among the various segments in manufacturing, the maximum slowdown has been observed in elec0trical machinery and apparatus which has fallen by as high as 59.2% compared to last July. It has directly impacted the consumption of electrical sheets in the country (10% lower than previous year), aggravated by lower imports of CRNO/CRGO by 7% in the first five months of the current fiscal compared to last year. Electricity generation correspondingly has grown by a nominal rate of 1.6% over last year.
On the other hand, the National Accounts Statistics on GDP in the first quarter (QI of FY17) released on August 31, 2016, shows that the Gross Value Added (GVA) at basic prices in the first quarter from manufacturing is up by 9.1% compared to last year and has been primarily contributed by more than 12% growth in the private corporate sector (accounting for 75% share in manufacturing). It also implies that the quasi corporate and unorganised segment having share of more than 20% in manufacturing and its performance being estimated from IIP in manufacturing has actually shown a negative growth in Q1.
While the dichotomy between trends reflected in BSE and NSE (private corporate sector) and actual output shown in IIP would continue to baffle many, there is an urgent need to reconstruct the composition, structure and methods of collection of IIP data also. Similar variance (though by a lower range) holds good for GVA growth in electricity, gas and water supply (growing at 9.4% in Q1) and IIP growth of 7.1% in electricity generation in April-July’16.
The growth of private corporates in the mining sector reflected in BSE and NSE at current prices (for major listed companies) was (-) 24% in Q1 of the current year that has pulled down the growth in quarterly GVA in mining and quarrying to (-) 0.4% against IIP growth in mining of 2% in the first four months of the current year. The steel-intensive capital goods sector as per IIP data has experienced a high negative growth of only 29.6% in July 2016 with production of sugar machinery and sealed compressors coming down by 52.7% and 33.3%, respectively as compared to last year
The concern for steel industry is also reflected in only 1.5% GVA growth in QI in the construction sector, where cement production was lower compared to last year. Coming back to investment data, it is seen that Gross Fixed Capital Formation (a proxy for investment) at constant prices has significantly come down from 32.7% in GDP in last year to 29.65 in the current year Q1, lower by R27,671 crore, a clear fall of 3.1% which needs to be made up in the balance periods of the current year.
There are a few areas where significant activities are in sight. These are — road building, Metro rail projects, expansion in dedicated freight corridors and industrial corridors. Urban development in the form of new flyovers, state highways, ROBs, small housing complexes in government, military and private sectors is continuing unabated.
However, there is a distinct slowdown in fresh mega projects in power, petrochemicals, major airports, large dams, setting up new smart cities with massive reconstruction of buildings and housing and other urban infrastructure facilities.
PMI data in August 2016 at 52.6 has generated hope on a revival in the manufacturing sector. While steel imports in the first five months have gone down by 34%, exports of steel went up by 32%. There is a strong likelihood that India becomes a net steel exporter in FY17. But the domestic market must also grow by a much higher extent to absorb the additional availability of 11-12 MT of steel in the current year.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.