The wild swing in the figure for industrial production in November at a negative -3.2 per cent after a high of 9.8 per cent in October came as a surprise, though the rise in the consumer price index to 5.6 per cent in December over 5.4 per cent in November was not totally unexpected considering the deficient monsoon and a bad start to the rabi season. The CPI is still within the Reserve Bank of India’s comfort zone but it is necessary to be alert as this is the fifth consecutive month that the CPI has risen. The government must take steps to meet the expected shortfall, particularly in pulses, so that the prices of food items do not rise further. The RBI would like households to be able to save, but they can do so only if food prices remain within reasonable limits. The government has been taking several measures, like importing pulses when necessary, but states like Maharashtra will have to take more stringent action against traders and hoarders.
November was an unusual month for manufacturing with several festive holidays and the unprecedented floods in Chennai shutting down production at several units, which are among the reasons for poor production figures. The steep fall in manufacturing, down 4.4 per cent, will become a source of worry if it continues in December.
Other major sources of concern are the fall in growth of consumer-oriented and investment-related sectors. The former fell 2.3 per cent and includes food products, textiles and wood and wood products. The investment-oriented sectors, which fell 8.7 per cent, include basic metals, electrical machinery, etc.
There is no doubt the government is aware of investments not coming in because companies are highly leveraged and unable to borrow and have 30 per cent idle capacity. But how long is this situation going to continue? The government has undertaken various reforms to make doing business easier though a lot still needs doing at the state level. Monies stuck in litigation and tax disputes must be unlocked on a war footing. Industry chamber Assocham has brought to the government’s notice the fact that `4 lakh crore to `5 lakh crore is locked in disputes, and that if even 40 per cent of this is released it would help banks clean up their balance sheets, to a large extent, and allow companies to think of fresh investments.
The IIP figures released Tuesday reveal that the consumer goods sector showed insipid growth because rural consumption was not strong. This is the umpteenth wake-up call for the government for a more rational agricultural policy, a more farmer- and farm labour-oriented policy. Economic adviser Arvind Subramanian has called for a focus on agriculture in the coming Budget. It is hoped the government takes this seriously.