There is a welcome uptick in the manufacturing sector. Incremental reform and incentives are clearly beginning to bear fruit. Manufacturing, which accounts for three-fourths of the Index of Industrial Production, has been recording a steady increase in recent months. In July, it grew by 4.7 percent while the number for June was 4.4 percent. Overall, year-on-year growth for the April-July period works out to 3.5 percent. The figure for the same period last year was 3.6 percent. The modest increase in the IIP for the quarter is due to the steep fall in the electricity sector which only grew by 2.6 percent in the April-July period as against 11.4 percent during the same period last year. Slowdown in power generation still does not hide the steady rise in the manufacturing sector. Electric machinery, garments, furniture were some of the segments which did exceedingly well. Automobiles too did well, growing by 7.9 percent in the quarter under review. Capital goods and consumer durables segments too registered notable gains. Cement, however, was a laggard, reflecting the huge inventory of housing stock in the real estate sector. Another segment which slipped was food products, which declined by 12.1 percent. Also down was the segment of consumer non-durables, which declined by 4.6 percent despite the fact that consumers had a little more surplus in hand due to the fall in energy prices. Yet, these numbers by themselves may not be enough to persuade the central bank to reduce the basic rate by at least a quarter percent. Of course, Governor Raghuram Rajan is unlikely to heed the advice of Arvind Subramaniam, the Economic Adviser to the Finance Minister, for a whopping one percent rate cut. Even the captains of industry and commerce have been pressing for a sizable cut, though the fact that the banks are saddled with a huge burden of non-performing assets detracts from the credibility of these tycoons. A key factor why Rajan is being pushed by the Finance Ministry and everyone else in the financial world, including various economic pundits, is the fact that both wholesale and consumer inflation is down. Indeed, both are far below the range Rajan himself had stipulated for factoring in the determination of the bellwether bank rate. At a time when the economy is recovering, the rate-incentive can improve the sentiment all around. Share markets are in the grip of a downturn following the Chinese tremors and the widely anticipated rate push by the US Fed. Though the policy makers seem to have factored in the end of the US taper, the nearness of the interest rate hike by the Fed has spooked the markets. It is notable that the foreign institutional investors have been net sellers on the stock markets in the recent weeks, though the domestic institutions have sought to step into the resulting breach to a large extent. Prime Minister’s pep talk to the corporate biggies to open their purse strings and take risks can bear fruit if the RBI too plays its part in pushing the growth engine. Frankly, even a 25 basis point cut in the bank rate can have a positive effect on the broader sentiment and boost the investment climate.
On its part, the government has sought to revive stalled infrastructure projects, especially those in the public-private-partnership sector, and has sanctioned new road and power projects. The total value of revived projects in the last financial year is said to be nearly Rs. 1.9 lakh crores. A number of original PPP concessionaries were hand in globe with the previous regime and failed to implement the projects despite liberal financial assistance from various state agencies. In fact, the flawed PPP model was being suitably tweaked by the new government and wherever possible stalled projects were either being implemented by the public agencies or were allocated to new parties after undertaking due diligence. How the huge loans disbursed by the public institutions in the name of PPPs will be recovered from the original concessionaires remains problematic, especially when a number of such borrowers have engaged the authorities in frivolous litigation. According to reports, new projects worth Rs. 1.2 lakh crore were approved in the first quarter of the current financial year itself, an increase of 48 percent over the same period last year. Slowly but steadily, the economic engine is picking up speed.
