In what is being seen as a negation of what economic theoreticians have been predicting, India’s industrial production rose by a surprising 5.7 per cent in November as against the contraction of 1.8 per cent in the previous month, according to Central Statistical Office figures. This amounts to a shaking off of the impact of demonetisation (which was announced on November 8) and is a shot in the arm for the establishment which has been claiming that all is well with the Indian economy. Adding to this upbeat statistic there is mixed news on the inflation front too. Retail inflation eased further to a three-year low of 3.41 per cent in December, reflecting weak demand as consumers grappled with cash crunch following demonetisation. While lower inflation is deemed to be good, the fact that it is a result of weak demand makes its value look dubious.
In November, manufacturing grew at 5.5 per cent against a contraction of 4.6 per cent a month prior, while growth in mining output and electricity generation also picked up to grow at 3.9 per cent and 8.9 per cent respectively. Capital goods production surged by 15 per cent in November, helped by the low base. The capital goods segment had contracted 24.4 per cent in November 2015. Clearly, there was tangible progress in these areas. But the cumulative Index of Industrial Production (IIP) growth for April-November was a dismal 0.4 per cent as against a growth of 3.8 per cent seen in the corresponding period a year ago, as per the CSO data. The manufacturing sector, which constitutes over 75 per cent of the index, recorded a contraction of 0.3 per cent as against a growth of 3.9 per cent in the same period last year. As part of the mixed bag, electricity generation grew 8.9 per cent in November compared with 0.7 per cent a year ago, while mining output grew 3.9 per cent in November compared with 1.7 per cent in the same month a year ago, showing a positive trend.
Economists, however, point out that “the main impetus has come from two segments one of which has been a drag on industrial growth so far i.e. capital goods besides consumer goods. While one would have to wait and watch for December to be certain of the neutral impact of demonetisation, negative growth in IIP in December and January of FY16 would provide a similar statistical benefit for industrial growth.
