Feb.16 : The government and industry can pat themselves on the back for the spectacular figures for industrial production for December at 16.8 per cent, even though they stand on a low growth base. However, whilst these figures are reassuring, the overall IIP figures indicate that the growth is uneven as some sectors, like electricity, mining and non-durable consumer goods within the manufacturing sector,
grew at a much lower one-digit pace. Dalal Street, however, did not seem to be impressed with the IIP figures because the stock market indexes — the Sensex and Nifty — closed in the negative on Monday, the first trading day after the IIP numbers were out on Friday. The market seemed more concerned about the global jitters caused by China’s tightening credit policy, which could hamper growth in the region and the US. The IIP figures topped the most optimistic projections of analysts at 16.8 per cent with manufacturing growing at 18.5 per cent, the highest since April 1995. But even if one discounts the low base advantage, on a month on month basis it is up 10.9 per cent in December 2009 and indicates the underlying strength in the industrial sector. The capital goods segment also saw robust growth and reached a historic high of 38.8 per cent year on year. But the strength is not broad-based enough, as mentioned above, in core sectors like mining and electricity and non-consumer durables. The growth in manufacturing has been supported by the government stimulus package as also by growth of 14.9 cent in bank credit, which marks the highest growth since 2009. So it raises the inevitable question that is on everyone’s mind: Should the stimulus package be withdrawn? The consensus, if you leave out the chambers of commerce and business associations, is that the government should start the withdrawal process because the stimulus has pushed fiscal deficit to 6.8 per cent of GDP, which is becoming unsustainable. Perhaps the government should remove the sops given to sectors that have recovered more than is good for the country’s roads, pollution and fuel consumption, like the auto sector. It will have to be done after considerable thought and weighing the pro and cons of withdrawal. But the withdrawal must start. Industry must learn to start standing on its own. There is a need for private sector spending to supplement at least some significant part of government spending. Today there is a huge gap between the two and this does not augur well for the economy. Those who talk of free markets and say the government should not be in the business of business must put their money where their mouths are.The importance of the manufacturing sector cannot be overstated. It is a large employment generator and employment is the need of the hour, both politically and socially. One view goes that manufacturing could become a less dependable source of employment as employers go in more and more for high technology in the manufacturing process. This view holds that the government should concentrate more on the services sector, which could rival the manufacturing sector in generating employment. The industrial sector is just one aspect of the economy. Exports, tourism, hospitality and growth in labour-intensive industries have yet to show robust growth. This sector does depend on the global demand situation and the global scenario is still very shaky. The latest crisis in Greece, which is facing a default on its sovereign debt, threatens to bring down the economies of Europe. Since Greece is part of the euro zone, it can only depend on its euro partners to bail it out, and Germany is already protesting having to bail out Greece as it feels that countries should pay for their extravagances.