Need of reviving the Industrial output to support the Indian Industries

The Indian government recently published its industrial output report which showed poor performance, as compared to the previous year. The industrial output fell by 0.6% in December 2012 on Y-o-Y basis. The electricity output in the country rose by 5.2% whereas some of the key sectors like manufacturing and mining contracted by 0.7% and 4% respectively.

Manufacturing sector which is a key sector for the development of the Indian economy saw a slowdown owing to weak domestic demand in terms of both consumption and investment. The sluggish exports due to the fragile global economy also added fuel to the fire for the contraction of the manufacturing sector. It is estimated that GDP per manufacturing growth will be at the level of only 1.9% for the year 2012-13, which will be the slowest in the past 14 years. The slowdown in the economy and rising inflation has resulted in declining private consumption thus resulting in a sharp fall in the output of consumer goods.

Also Read on GWI Should India develop her own Manufacturing Hub or remain the Outsourced Hub for Western Economies.

Under such circumstances, the lowering of interest rates by the Apex bank of India would help in the recovery of the industrial growth which will revive the consumption demand. Also assuming that the monsoon remains normal in the coming season, there will be a higher farm income, which will add to the revival of the industrial growth.

The improvement in demand will lead to the improved capacity utilization which in turn should help in the revival of the of the investment pipeline. For the Indian economy at the current stage, if the investment climate continue, it is pretty likely that the economy will be able to keep a check on its problem of rising fiscal deficit.

Industrial Output

Some of the key facts and figures about Industrial Output:

1. Consumer goods output fell by 4.2% in December which is its sharpest decline since March 2009
2. Consumer durables output contracted by 8.2%
3. Non-durables output fell by 1.4%
4. Capital goods output was no different and showed a fall of 0.9% continuing its trend
5. Of the 22 industry groups present only 10 group posted a growth in December 2012 (2-digit classification)
6. Infra industries saw a better performance by growing at 2.7% for eight core infra industries as compared to its previous numbers of 1.6% a month
7. Output of natural gas, coal and fertilizers contracted significantly.

Problems of the Indian Industries

If we talk about the manufacturing output gap based on the actual and estimated potential growth, we find that the territory continues to remain in negative since April 2011, thus explaining the state of Indian industries under performance. If the output gap for December 2012 is considered, it stood at the highest gap of -7.5% since 6 months.

Well now if we try looking at the problem for such poor performance of industrial growth, we would find that the Policy log-jam on the mining front has been adversely impacting the industrial output. It is needless to say that output from the mining sector which includes coal, iron ore, etc. serves as the main component for several different industries. Contraction in output of the mining sector for two consecutive years has resulted in slow output for other industries. Thus it is very important that in order to revive the growth in the industrial sector, India needs to improve on its policy. Output of the mining sector (including coal, iron ore) which serves as a key input into other industries has not only grown much slower, but also led to the decline of manufacturing growth as well since 2004-05.

Thus it is important that the country shifts its focus towards policy formulation and implementation if we want to revive the growth in the economy.