With the index of industrial production (IIP) for June 2010 out, it is now possible to get a view of industrial production in the first quarter of the current fiscal year. While the general index for June 2010 is 7 per cent higher than that in June 2009, for the quarter-on-quarter estimate, industry shows a growth rate closer to 12 per cent. Of the three broad groups, manufacturing has clocked the best growth at more than 12 per cent on a month-on-month basis with electricity faring the worst at 3.5 per cent, though the quarter-on-quarter growth for electricity is slightly better at 5.6 per cent. Thirteen of the 17 industries at two-digit level of classification show a positive growth rate for the first quarter. The ones that stand out are metal products and parts, jute and vegetable fibres and transport equipment. Among the negatives are leather and wood (and their various products). Beverages and tobacco also show a negative growth, but some may find that a good achievement what with all the politically correct public service messages on smoking. To get a broader view of the overall gross domestic product (GDP) growth, the performance of each and every sector is not that important. Indeed, in a structurally changing economy, it is entirely possible that resources will be shifted out from those with lower returns on investment or from less valuable sectors to the more valuable ones. As a consequence, some sectors will shrink while others will grow. Hence, the overall GDP number is the simple (weighted) addition of increasingly important sectors in an economy under transition.
Changes in the IIP can be viewed from different perspectives. An obvious one is to see how higher industrial production is translating into employment. One can calculate the employment multiplier of a sector as the number of people who get additional employment because of a one-unit growth in the output of that sector. Though the output change being considered here is an absolute figure, it can loosely be said that higher growth in sectors with higher employment multipliers is more desirable in India where finding productive jobs for the unemployed youth is a primary policy objective. Thus, the effects on GDP of a 9 per cent drop in wood and wood products can be counter-balanced by a 9 per cent growth in a similar size sector. However, because wood and wood products have a higher employment multiplier, this other sector has to grow at a higher rate if it has to overcome the negative effect on employment. Unfortunately, however, three of the four negative growth sectors have very high employment multipliers. Hence, even as one celebrates a 12 per cent rise in industrial production in the first quarter of 2010-11, there is need to worry about the employment generation implications of the structural shift under way. The capital intensity of industrial production is on the rise, once again. This is reflected in the robust growth in capital goods and intermediates, matched by increased capital goods imports, and a surge in the consumer durables sector. Both suggest that businesses and consumers are getting increasingly confident about the country’s future prospects. The challenge remains in power and infrastructure.