Hold that champagne

BS OPINION

On the face of it, the economy has rarely had it so good. As evidence of a coming boom, investments are finally beginning to pick up "" according to the CMIE's 34th Survey of Investment Projects in July this year, investments-on-hand have risen by 9.5 per cent in the manufacturing sector.

Had it not been for the fact that power sector investment fell a whopping 15 per cent for the year, this would have been another positive factor for stimulating GDP growth.

And while cargo handled by the country's ports was up 5.9 per cent in the April to July period this year, goods traffic on the railways has grown 7.2 per cent, on top of 7.7 per cent growth in the same period last year.

Which is why, when the official numbers for infrastructure industries were released earlier this week, they caused surprise. The reactions among economists have ranged from 'the-numbers-are-nutty' to 'it's-a-temporary-blip'.

Crude oil production, for instance, fell by 2 per cent in April-August this year, against growth of 6.3 per cent in the same period last year; but this had to do with the fact that ONGC, the country's largest producer, shut down some parts of its biggest oilfields for maintenance in August. According to ONGC, production in the full year will be up marginally from that of last year.

It is also true that some numbers make no sense. If infrastructure spending by the government is up, with the golden quadrilateral and other projects racing ahead, and when housing loans are proceeding at a pace unheard of before, it's difficult to explain the slowdown in cement growth to less than half of what it was last year.

The sharp fall in fertiliser production (17 per cent in June), similarly, doesn't make sense in the face of an abundant monsoon and reports of sharp growth in fertiliser application.

The slowdown in electricity generation (electricity has a 10 per cent weight in the over-all index of industrial production) also flies in the face of the increase in industrial production this year. So, perhaps it does make sense to wait for more data before rushing to conclusions, either way.

Meanwhile, it would be prudent to recognise the concern areas. Credit rating firm Crisil's research has shown, for instance, that industrial recoveries over the past decade have become weaker and weaker, and involve a steadily smaller number of industrial sectors "" in other words, in the absence of structural reforms, the growth impetus is being dissipated, not built upon.

That point is clearly brought out by the sharp decline in power-sector investments planned "" when the sector was opened up, investors came in droves, but left the same way when they found an absence of reforms in the distribution end of the power sector.

Similarly, unless agriculture is genuinely freed, it is difficult to see how sustained 7 per cent GDP growth is possible "" this year's numbers will be driven by unusually high farm sector growth, itself a result of the fact that last year was a drought year.

The next few months may see some better numbers, but the concerns won't go away. Industrial growth is not climbing above 6 per cent even today.