NEW DELHI: Poor performance of manufacturing and mining sectors coupled with a sharp decline in output of capital goods in March and acceleration of retail inflation at 5.39% in April are double trouble for policy makers. According to the data released by the Central Statistics Office here on Thursday, the Index of Industrial Production (IIP) rose by just 0.1% in March, down from a 1.9% increase in February.
The IIP conveys the status of production in the industrial sector of an economy in a given period of time, in comparison with a fixed reference point in the past. The IIP numbers in India use 2004-05 as the base year for comparison.
Manufacturing contracted by 1.2% in March, as against a growth of 2.7 per cent in same month last year. Mining output contracted by 0.1%. But electricity saw a growth of 11.3%. The lackluster performance by India’s factory output in March indicates that an industrial recovery is still at nascent stage and also volatile.
“While the capital goods index has always been volatile, March’s print was the fifth consecutive number in contractionary territory and is a cause of concern as investment activity is a necessity for balanced growth in the future,” said Rishi Shah, Economist, Deloitte India.
The positive trend in the consumer durables sector continued as the number for March showed an expansion of 8.2% with overall growth for the year at 11.2%. Any meaningful recovery in industry still seems to be some time away and will need support from policy makers in the form of infrastructure creation.
“The growth in manufacturing may take more time to pick up. It is therefore important that the Government holistically addresses the issues related to manufacturing involving all departments and States,” said Harshavardhan Neotia, president of FICCI.
Capital good segment contracted by 15.4% in March 2016 as against 9.1% growth in 2015. During 2014-15, the output of these goods fell by 2.9% compared to a growth of 6.3% in previous fiscal. “Overall, the big picture looks far more difficult making it imperative for the government to bring in policy reforms and demand push measures,” Sunil Kanoria, president of Associated Chambers of Commerce and Industry.
“The government must also front-load its capital expenditure for the fiscal 2016-17 to stimulate the economy,” he added.
The data showed that 12 of the 22 industry groups in manufacturing sector showed positive growth in March 2016 as compared to a year ago.
As we now move into the next fiscal, industrial growth will be crucially dependent on external factors such as the monsoons as they can propel rural demand.