Recovery Still Long Ahead
The latest numbers for the Index of Industrial Production (IIP) for the month of August convey a message that still a lot needs to be done so as to declare that our industrial sector is, in actuality, seeing some recovery.
With a growth of just 0.6% y-o-y that is definitely below expectations, we need to work a lot better in coming days to improve the situation whatsoever.
The manufacturing sector that accounts for almost 80 % of the IIP was almost flat for the period of April to August.
Therefore, anything but miracle in the second half of the year is expected to achieve what most of the incumbent MPs were busy boasting that India will grow around 5% for the entire year.
Is it really possible by any means? Considering the present situation and Lok Sabha polls approaching, nothing but only further debacle seems imminent.
In order to learn about the gravity of situation look for instance garments industry. A big confusion in figures is waiting for you. Read to know yourself.
Garments, for instance, showed over 25% y-o-y growth in August, and over 40% for the April to August period. But looking at the textiles sector at the same time – textiles actually grew by 5% in August and 35 from April to August. Therefore, from where did the raw material come from? Or, the figures are highly flawed.
A column in Business Standards by the name ‘An Elusive Recovery’ puts the matters more clearly. Even Deepak Shenoy has put such a matter in front of readers many a times.
The aggregate of capital goods sector fell down by almost 15% in August accompanied by flat growth for the period from April to August. Similalry, consumer durables showed a decline of 11% during the period of April to August.
But, there is some good news hiding somewhere in the recently released data. If we take trade numbers for September into consideration, IIP numbers for the next month may be better.
What is so special lying beneath?
In the month of September, trade deficit was recorded to be $ 6.8 billion which was almost half to what was registered in the same month a year back. The figure was $ 17 billion in September 2012. The positive change came due to 11% growth achieved in exports. At the same time imports declined by 18%.
With depreciation in rupee and increase in demand in the US, Indian exports received a major fillip lately. And, slowing up of domestic economy led to less imports being carried out lately. The measures taken up by government in tackling gold imports also started working helping trade deficit to come under some sort of control. This improvement in trade deficit will surely help the economy to improve further. But, domestic consumption is still low and same is domestic spending of the country.
To add to it, our fiscal deficit needs to be in greater control than what it’s at present. Although, 2.5% of GDP will be a cruel joke posed in front of the already weak UPA government, we can only hope Chidambaram keeps it within manageable limits, as promised by him some months back.