IIP misses a beat

But growth recovery is under way

The Index of Industrial Production (IIP) numbers for June were widely expected to show slightly higher growth than the previous month's 4.7 per cent. This was in keeping with the perception that an industrial recovery, however modest, was definitely under way. However, those expectations were not fulfilled. The overall growth number came in at 3.4 per cent. The biggest component of the index, manufacturing, grew at a pallid 1.8 per cent, with electricity playing a stellar role, growing by over 15 per cent. This takes the growth in the industrial sector for the April-June quarter to 3.9 per cent - not terrible in comparison with the record of the previous two years. In fact, manufacturing, by virtue of its surge in May, recorded 3.1 per cent growth during the quarter, which could be seen as a reassuring sign of recovery, mild as it may be. So are the overall portents of recovery positive or negative?

The performance by various industrial groups during the month provides some clues. Transport equipment as a whole grew by about 7.5 per cent, certainly not spectacular but positive nonetheless. Basic metals grew by eight per cent, also suggesting some breadth to an uptick in consuming sectors. Non-metallic mineral products, primarily cement, grew by almost 10 per cent, indicating some energy in the construction sector. The star performer was electrical machinery and apparatus, which grew by over 69 per cent. Such spikes in individual sectors do have a significant impact on the aggregate, so the breadth of positive growth is the more critical indicator. On this score, apparently, some key sectors are showing momentum and this reinforces the perception of a recovery being under way. However, there are some significant negatives as well. Office and computing equipment, and radio, TV and communication equipment both declined by over 60 per cent each. Garments also declined, though by a less steep rate, perhaps indicating some resistance in export markets. In terms of the use-based classification, capital goods surged by 23 per cent during the month but consumer durables offset this by declining at a similar rate.

The relatively wide range of growth rates across sectors is not consistent with a robust recovery. Evidently, business opportunities for some sectors were very good during June; the following month, some other sectors will see spikes, both upward and downward. The underpinning of a sustainable recovery is that several significant sectors move in concert over a reasonable period of time - perhaps for a couple of quarters. This is clearly not happening yet. However, the combined pattern seen in three major sectors - transport, basic metals and non-metallic mineral products - does conform to a broad-based uptick. This is perhaps the strongest source of comfort from the June numbers, even though the aggregate growth rate missed a beat after the previous month's surge. As the government comes to grips with various issues, it can draw some comfort from the fact that barring an unforeseen shock, things are not going to get worse and any positive actions will only reinforce the recovery. The Reserve Bank of India will no doubt continue to focus on inflation, with the assurance that the growth cycle is turning around.