Even as the political stalemate in Parliament continued and the winter session ended without transacting much business, the Indian economy seemed to be chugging along. While every passing day has its share of worrying news on the political front for the government of the day, the news from the economy is good and offers some comfort to a beleaguered government. Last week’s news on industrial production, as shown by the government’s index of industrial production (IIP) data, was better than what most expected. While most analysts assumed growth would pick up but remain in single digits, the IIP registered a 10.8 per cent rate of growth for the month of October 2010, contributing to a cumulative average growth rate of 10.3 per cent for the period April to October 2010. This latter number compares with 6.9 per cent for the same period last year. Clearly, the industrial sector has seen a revival of growth after the slowdown of 2009. Broken down into its various components, industrial growth data showed a 11.3 per cent growth in manufacturing sector output, 8.8 per cent for electricity and 6.5 per cent for mining. When classified into use-based categories, the IIP shows a whopping 31 per cent growth in consumer durables and a 22 per cent growth in capital goods for the month of October. In the first half of 2010-11, April to October, capital goods output increased by 24 per cent compared to a mere 6 per cent for the same period last year. Consumer durables production increased by 24.4 per cent in April-October of 2010-11, compared to 18.6 per cent for the same period last year. Manufacturing sector growth, of 11 per cent in April-October 2010 compared to 6.8 per cent in 2009, covered a wide range of industries, including agro-based, food processing, metals and mining-based, machinery and transport equipment and plastics and petrochemicals.
All in all, the industrial production data point to renewed growth in the industrial sector. There is no reason why this revival cannot be sustained. However, to ensure this, the government and India’s macroeconomic authorities must extend a supportive policy environment. By and large, both monetary and fiscal policy have been supportive. Even exchange rate policy and inflation management have by and large been supportive of industrial revival. There are, however, some areas of concern. Weak infrastructure remains a major barrier to higher growth. Inadequate development of the power sector is another. In fact, the only worrying data from the IIP is the low growth of electricity output, estimated at a lowly 4.6 per cent in April-October of 2010-11, compared to 6.3 per cent in the same period last year. Power shortages and poor management of the power sector remain a constraint on growth. It is comforting, though, that the surge in capital goods production has been driven partly by the high growth in power equipment manufacturing sector. However, to sustain this growth performance, the country needs a more business-friendly environment, more investment in infrastructure and more rational pricing policies for energy, and above all, political stability. It would be dangerously short-sighted and wrong to assume that the economy can be expected to continue to do well, irrespective of what happens within the realm of politics.
