IIP at 20-month low in February: Growth worries deepen as manufacturing sector stress continues to hammer factory output

Key economic indicators continue to display a disappointing picture of the economy indicating sustaining slowdown in the economic activities. The factory output (index of industrial production or IIP) numbers for February has shown a 0.1 percent growth in February as against 6.9 percent in the year-ago period. That’s the slowest growth in at least 20 months, data shows. In June 2017, the IIP growth was contracted by 0.3 percent. In the April-February period, the IIP grew by 4 percent. During the fiscal 2018 (Apr-February), the factory output had grown 4.3 percent. Of the multiple indicators that constitute the IIP, manufacturing sector has disappointed the most, contracting by 0.3 percent in February 2019 compared with 8.4 percent in February 2018. That’s even more worrying because growth in manufacturing sector is key for job creation. India is in the midst of an unemployment crisis which is also at the centre of a political debate. [caption id=“attachment_4008427” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The Congress-led Opposition parties have been questioning the failure of the outgoing Narendra Modi government in creating employment opportunities for millions of new job entrants and even destroying jobs in the informal sector by launching the demonetisation move. The absence of large-scale fresh private investments has been cited as one of the reasons why new factory jobs aren’t coming up. The February IIP data too points to continuing absence of investment activity. The capital goods component in the IIP, which indicates investment activity, has been falling. In February, this segment contracted by 8.8 percent compared with a contraction of 3.4 percent in the previous month in the month before. The IIP numbers are typically touched with a bit of suspicion by seasoned economists as these are highly volatile monthly numbers. Sudden spikes and drops are normal and don’t get over hype. But, that’s not the case when the IIP data over a period of time begins to show a certain pattern. Since June, 2018 (7 percent), the IIP has been falling consistently, with the only exception being October, 2018 when the index recorded a sudden spike of 8.4 percent. In January, 2019, the reading was 1.4 percent. It goes without saying that India will have to accelerate its manufacturing sector growth if it wants to create more employment opportunities; now read this with the unemployment figures. The Centre for Monitoring Indian Economy (CMIE) recently said that at 7.2 percent, the country’s unemployment rate in February was the worst in at least 29 months when labour force dwindled 25.7 million since September 2016. Separately, the National Sample Survey Office (NSSO) survey suggested that unemployment rate for skilled persons in the country doubled to 12.4 percent in 2017-18 from 5.9 percent in 2011-12 and the number of jobless among the educated went up too. A sudden revival in the economy at this point seems to be difficult on account of a slowing global economy. The fading effects of the US expansionary policies coupled with troubles in Europe continue to weigh in on the emerging markets including India. But the absence of private sector participation would mean that domestic economic revival will have to be triggered by the public sector. Also, there is pressure mounting on the monetary policy committee (MPC) to provide further stimulus to support the growth. Already, the MPC has effected two token rate cuts in the last two policies. Analysts expect that the rate cut spree to continue in the approaching months given benign inflation. The retail inflation saw a marginal rise of 2.86 percent in March on account of increase in prices of food articles and fuel. Will the monetary policy stimulus do the trick to revive the economy? One has to wait and see. The Reserve Bank of India (RBI) has been complaining of poor monetary transmission for too long now. (Data support by Kishor Kadam)