It is a measure of the very low expectations from the economy that even an anaemic 2.4 per cent increase in industrial production in May should be viewed positively in some quarters. It is only on a comparison with the previous months that the index of industrial production (IIP) data looks tolerable, though it is quite a stretch to claim that it marks the beginning of a turnaround in the economy. Industrial production had contracted in March and April by 3.2 per cent and 0.9 per cent respectively. But “a return to positive territory” is, by itself, hardly a cause for celebration. In May 2011, industrial production had grown by a relatively healthy 6.4 per cent, which at that time was considered to be inadequate. The dip in industrial production has been the prime reason for the steep fall in overall GDP growth rates during last year. A break-up of the May data reveals that manufacturing, accounting for more than 75 per cent of the overall IIP, grew by 2.5 per cent after contracting 1.25 per cent in the preceding month. If that is seen to augur well for future growth, the decline in mining — it contracted by 0.9 per cent — and in the output of capital goods by as much as 7.7 per cent are real dampeners. Capital goods are a proxy for short-term investments while the poor performance of mining points to the need for proactive, holistic government policies towards the sector.
The relatively strong performance of consumer goods might be short-lived if the monsoon remains erratic, dashing hopes of a robust rural demand. The performance of various sectors that form the IIP is, therefore, mixed and merely reflects the ground realities. Interestingly, even at a much broader level, the value of this index to policymaking has, for quite some time, been questioned for very basic reasons. Even in the new series, revised with 2004-05 as the base, the index has been extremely volatile and subject to frequent revisions, a glaring, recent example being the April number which was revised downwards to negative territory from a small 0.1 per cent increase. The IIP series has been considered unreliable and inaccurate by important users of economic data including, notably, the Reserve Bank of India. Its governor has, more than once, complained that the index’s negative attributes hinder monetary policy formulation. There is of course a case for improving government statistics including the IIP. As for the May figures, while they may not indicate a bounce-back, they do send out a clear message to the government to frame policies that will put industrial growth back on track.