A 6.8 per cent industrial growth in January may seem not too bad at first sight. This is more so when it comes on the back of two disappointing quarters, which saw what even in the 70s and 80s would have been derisively dismissed as ‘Hindu Rate' of growth. But any suggestion of a rebound is misplaced for two reasons. The first is that the apparent turnaround in January has been entirely on account of ‘consumer non-durables'. This segment, with a weight of 21.3 per cent in the general index of industrial production (IIP), has posted a spectacular 42.1 per cent year-on-year increase. Within consumer non-durables, ‘food products and beverages' have grown by 92.6 per cent, bettered only by the 127.3 per cent for ‘ zarda /chewing tobacco'. Such astronomical growth rates are most likely a result of a bunching up of returns by manufacturers, which, in this case, may have artificially boosted production in January, while depressing it in the previous month. All other segments of the IIP have performed miserably in January: ‘basic goods' (1.6 per cent growth), ‘capital goods' (minus 1.5 per cent), ‘intermediate goods' (minus 3.2 per cent) and ‘consumer durables' (minus 6.8 per cent).
The second reason for scepticism has to do with capital goods itself, the production of which is a fair barometer of investment activity in the economy. January marks the fifth consecutive month where this index has registered negative growth. And that, more than any overall growth slowdown, is the real worry today. There are very few large greenfield projects currently being executed in the country or, worse, under contemplation. It has implications for both growth as well as jobs for tomorrow, especially if one were to look at the huge investments required in new power plants, highways and other productivity-boosting infrastructure. The current crisis, as we have been repeatedly maintaining, is not about growth, but about investment.
All the more reason, then, for the policymakers to make restoration of investor confidence among businessmen their top priority. The worst thing to do is to read signs of any recovery based on the January IIP numbers. Both the Union Budget to be presented on March 16 and the Reserve Bank of India's (RBI) mid-quarter monetary policy review scheduled for the previous day should make growth and investment the focus of their attention. Broadly, it would mean bringing down the Centre's fiscal deficit and redirecting public expenditures away from wasteful consumption to productive investments. The RBI, too, should follow up last week's move to slash cash reserve ratio requirements for banks with a reduction in its policy rates as well. These measures – along with passage of pending economic legislations, including that pertaining to the game-changing Goods and Services Tax – will go a long way in bringing back the ‘animal spirits' of investors.