In the midst of recent debate on the incongruence between GDP and GVA data of CSO and the market realities displayed by poor growth in non-agricultural credit and slow rise in capex, the release of IIP data has opened up another window for deliberations. Manufacturing, the whipping boy for industrial growth, goes up by 5.1% in the first month of FY16 against 2.8% in March ’15 and 2.3% in FY15. This along with electricity generation at a negative rate and mining at barely positive (0.6%) has made possible the industrial output to grow at 4.1% in April ’15.
Interestingly, capital goods segment comprising around 9% weightage in manufacturing has risen by 11.1% during the month. Consumer durables, however, indicates a marginally positive growth of 1.3% after clocking a huge negative growth (12.5%) in FY15. The machinery equipment and electrical equipment segments achieving 20.6% and 13.4% growth respectively over April ’15 may be taken as an early indicator of the success of Make in India programme, but needs a watch in the coming months for confirmation.
The growth in manufacturing of motor vehicles and furniture to an average 7.5% in the month is good news for consumer durable segment and for household consumption expenditure. A very high growth achieved by Boilers (40.3%), room air conditioners (34.4%) and 3-wheelers (24%) would inject breathers to these languishing segments.
However, these rates need continuation before arriving at a firm conclusion.
The industrial growth data for April ’15 therefore provide a boost, not-so-strong, to steel consumption that has grown by 7% over the corresponding month of last year. Gross fixed capital formation, a proxy for investment and accounting for more than 60% in steel demand, has been consistently declining from 31.4% in FY13 to 28.7% in FY15. Although the government has done a good job in clearing 42 stalled projects worth Rs 1,150 billion , the magnitude is not significant and is yet to influence the private investment. The latter, irrespective of the age-old theories, still crowd in following the lead of public investment.
In some exclusive areas like real estate, communication, storage, the ease of doing business is a great motivator and the role and guidance of the regulators in each of these areas are predominant. Apart from roadways and real estate, the private entrepreneurs have to come forward in a big way to put in their money in energy, railways, defence procurement, development and upgradation of major and minor airports, setting up of new ports and development of the existing ones, creating storage and warehousing facilities by FCI/CWC. The private sector, big corporates and medium units need to be associated actively while framing out policy guidelines for investment to avoid all the irritants in implementation. This applies to PPP mode of investment route also.
The revival of manufacturing sector in India has to be seen in the context of massive surplus capacities and subdued demand in the global market that has the potential to fuel import flows to cater to the rising indigenous demand.
This is a specific problem for India and a few other countries exhibiting islands of growth and expansion potential amid the ocean of shrinking demand and unsold goods. Make in India programme needs to learn the balancing act fast before it is termed as restrictive, protective and anti-trade.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.
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