There are mixed signals on whether the slowdown phase has bottomed out or will persist for a little while longer

With the spurt in factory output last October turning out to be an aberration in the wake of sharp downturns in the months after, the latest Economic Survey has sought to describe the industrial production scenario as a ‘mixed picture’ of sluggishness bottoming out as well as continuing for a little longer period.

What came as a surprise to the government while India Inc. maintained a ‘we said so’ stance to clamour for easing of interest rates, was that industrial growth, as measured by the IIP (Index of Industrial Production), witnessed a smart recovery with a robust 8.3 per cent expansion in October, 2012.

Negative territory

But the period of cheer was short-lived as the IIP growth nosedived and entered negative territory in the next two months of the year to the disappointment of the authorities.

Unable to decipher the growth trend, the Survey said: “Notwithstanding a pick-up in industrial growth observed in October, 2012, there are mixed signals on whether the slowdown phase has bottomed out or the current sluggishness would persist a little longer.”

The cumulative growth trend, however, has been downward as the overall industrial performance continued to moderate since the first quarter of 2011-12 and turned negative during the first quarter of the current fiscal before moving to positive territory with a growth of 2.1 per cent in the third quarter (October-December) of 2012-13.

Despite the downward bias, the Survey has highlighted at least two factors which point to some optimism on the industrial front.

First is the data on frequency distribution of products/product groups within the IIP basket which indicates that the number of products with negative growth has declined from 182 in the fourth quarter of 2011-12 to 160 in October-November 2012.

The second positive factor is the Reserve Bank of India’s ‘Business expectation index’, which showed moderately positive growth during the third quarter of the current fiscal after posting persistent negative growth for the previous six quarters. Since the RBI business index tracks IIP growth fairly closely, the change in trend suggests a possible bottoming out of IIP growth moderation.

In this light, according to the Survey, the latest data gives an indication of the industrial sector remaining moderately positive with a growth of around 3 per cent during 2012-13.

Remains vulnerable

Noting that the IIP growth trend remains vulnerable to several domestic factors and external shocks, the Survey said: “Infrastructure and energy constraints, decline in demand for India’s exports, and fragile recovery in investment are the risk factors.’’

Apart from a weak investment climate, industrial performance remained subdued due to infrastructure bottlenecks, it said.

Besides, sourcing of finance at competitive costs, the Survey maintained, is another major constraint for organised and unorganised MSMEs (medium small and micro enterprises).

Moreover, the Survey went on to highlight the fact that India has not improved significantly in terms of the ease of doing business and ranks very low in comparison to other industrial peers.

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