The Hindu Business Line : Industrial recovery hinges on revival of investment: Study

THE National Council of Applied Economic Research (NCAER) has said that further consolidation of current turnaround in Indian industry would depend much on the duration of Iraq war and revival of investment activity in the economy.

In its latest quarterly review released here, the council observed that the future growth of industrial sector, which clocked a growth of 5.5 per cent for the period April to December 2002-03, would critically depend on the revival of investment activity. But, unfortunately, even the Union Budget 2003-04, has done "little to remove policy uncertainty which has plagued the investment activity in the recent past, the council said, adding, "there is no evidence of investment spending yet picking up in the economy."

The council noted that industrial investment during 2002 has remained nearly stagnant as reflected through Industrial Entrepreneur Memorandum (IEM), which stood at Rs 91,291 crore compared with Rs 91,257 crore in 2001. On the impact of the Union Budget on industry, it said that while some specific industries like construction, railways and to a certain extent tourism and health would gain due to the measures outlined in the Budget, it is unlikely to trigger a major revival in investment. "Short on reforms, on the whole the impact of budget on industrial sector may at best be a modest one," the council observed.

It said that uncertainty in Persian Gulf leading to hike in crude and petroleum product prices in the last quarter of 2002-03 fiscal has pushed the preliminary wholesale price index for all commodities. As fuel cost is a major component of industrial sector, increase in fuel prices is bound to affect manufactured goods prices in the coming months, it warned, adding that its impact through increased freight cost could affect the prices of commodities across the board.

Stating that industries like cement would be very badly hit, as freight is a major cost for this industry, the council cautioned, "if inflation continues to rise the soft interest rate regime may be another casualty." This would certainly dampen the industrial sentiments, it noted.

Giving growth projections for the current fiscal (2003-04), the second year of the Tenth Plan, the council said the overall real GDP growth is projected to grow at 5.6 per cent in case investment does not get very adversely affected. In case of "dismal" investment situation and lower world GDP, the Indian economy is likely to grow at 5.2 per cent to 5 per cent respectively.

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