The index of industrial production (IIP) numbers for March came as something of a relief for many observers, showing overall growth at 2.5 per cent over March 2012. Manufacturing, the largest component of the index, did a shade better at 3.2 per cent. This prompted government spokespersons to reinforce their view that the growth cycle had bottomed out and the recovery was at hand. For a government fighting fires almost incessantly, any hint of good news is unquestionably a dividend. If this number is indeed suggestive of a recovery, with interest rates falling and soft commodity prices, the macroeconomic landscape looks a lot more pleasant than it did a few months ago.
But the sectoral patterns making up the 2.5 per cent growth should raise some concerns about the robustness of the recovery, even if one is under way. The most striking feature of the March numbers is the over 150 per cent year-on-year growth in the garments category. Even with a mild recovery in exports, this surge seems too good to be true. What makes it even less credible is that textiles, which are an input into garments, grew by only 2.9 per cent over the year. One has to wonder what these large volumes of garments were being made from. If, as has happened regularly in the past, this is the result of a data error, a significant downward revision is inevitable and confident assertions of a recovery may prove to be premature.
The bigger picture to focus on here is that, notwithstanding these apparent anomalies, industrial production grew by a mere one per cent during 2012-13. As has been pointed out, this is the lowest annual growth rate in 20 years. It really tells a story of the industrial sector struggling, without any success, to replicate its glory days of 2003-08. And one doesn't have to look very far for the reasons behind this sorry state of affairs. No new investments can be made because of a host of regulatory and administrative constraints. Power shortages were supposed to be eradicated by the surge in generating capacity, except that there is no fuel available to run it. And, worst of all, in a situation in which the government needs to reassure investors and consumers that it is fully engaged in dealing with these issues, its attention is visibly and frustratingly diverted to ensuring that it survives, however precariously. As tempting as it may be to see the 2.5 per cent growth as evidence of a spontaneous recovery, insulated from the extreme political uncertainty, even angst, this is a risky conclusion.
The reality is that there will be no growth recovery unless investment activity is ramped up, which in turn will not happen until a constructive and stable policy and regulatory environment returns. And there is absolutely no signal from the political establishment that this will happen anytime soon. Instead of drawing false comfort from the aggregate numbers, policy makers would be well advised to read the messages coming from the components. Even if garment production is actually surging, it does not add up to a credible recovery story.
