Indian Industry Performance

History repeats itself, so is the case with Indian economy. The recent IIP numbers released reveal a poor picture about Indian Industry Performance.

The IIP data shows that the performance of Indian Industry has been one its worst performance in the past 20 years where Industrial output has grown by a mere 1% in 2012-13 down from 2.9% in 2011-12. From the manufacturing point too, the data is gloomy with manufacturing output growing by mere 1.2%, despite having nearly three quarter weight in the IIP.

The current situation prevailing in the economy is reminiscent of the crisis which was seen in the year 1991-92, when the industrial output grew by as low as 0.6%, whereas manufacturing output contracted by around 0.8%. The growth of manufacturing output has remained well below its trend growth rate in the last few years. The gap from the trend has continued to expand with every passing year. Apart from manufacturing sector, the fate of mining is no good either. The sector finds itself in a similar plight.

It is expected that the Industrial growth will lift from this point (current lows of 2013-14) but again the slowdown will be seen to a great extent. The growth will remain well below its long term trend. It is expected that the recovery in spending pattern and consumption will help the industrial sector recover.

The marginal improvement in the global economic environment has definitely brought rays of hope for the export market. There has already been a positive growth registered with the export sector which is expected to grow further. This positive trend in export will help in improving manufacturing and other industrial output to a great extent.

Talking of mining sector we see that the policy logjam has paralyzed the growth of the sector. However some early resolution if implemented can provide some respite not only to mining sector individually rather industries dependent on the same as well like power generation.

India needs a strong Manufacturing Base

It is undoubtedly true that, if India aspires to be a powerful nation by 2030, it needs a strong sustainable growth which can be only achieved if India creates a strong manufacturing base. Being one of the major outsourcing hub we have become highly dependent on the developed western economies and thus have a fear of collapse due to volatile demand from the western economy. So it is required that the nation works collectively towards the building of strong, hardcore manufacturing industry. The National Manufacturing Policy (NMP) which is to be implemented over this decade aims to raise manufacturing’s contribution from current 15% to 25% by 2022.

1. Manufacturing sector output has grown by at a fast pace in past 5 months. Of the 22 industries under the sector, over 10 industries have reported under 2-digit growth during March. The capital and consumer goods which are thought to be the economy drivers have shown weak results owing to the weakness in consumption and demand.
2. The negative gap widened in 2012-13 to a great extent due to the weak manufacturing demand. This was also reflected in the low pricing power of the corporate houses.
3. If we talk of the heavy weights (core industries) of manufacturing sector we see that the 8 core industries have over 38% weightage in the entire manufacturing sector. Core industries grew by 2.9% in March. Growth in output of core industries was however halved to 2.6% in 2012-13 from 5% a year ago.
4. Natural gas and crude oil sectors performed poorly and thus kept the entire sector paralyzed.

It is thus important that we move from service to manufacturing and focus more upon core industries. If the output and growth of core industries is tackled, rest 14 industries of manufacturing will automatically gain momentum coming on right track.