Based on the industrial production data for October, if you infer that the factory sector is revving up, perish the thought. It is again a case of how figures can lie, though the numbers are incontestable.
Prima facie, the industrial output growth rate had vaulted to an impressive 8.2% during October, with the heavyweight manufacturing only marginally short of the double-digit mark. But a closer look at the numbers reveals that all is not hunky-dory.
A year ago, that is during October 2011, the general index had sagged by 5%; the upshot of this was a big boost to the growth rate a year later. Two years ago, the IIP (Index of Industrial Production) stood at 158.3 (2004-05=100) and now at 171.3, implying a spurt of a mere 3.1% in these 24 months on a point-to-point basis.
Since the index is largely influenced by the showing in the manufacturing segment, the 9.6% jump in October 2012 is easily explained by the base effect. In the last fiscal, that is in 2010-11, the manufacturing index was at 165.9 — the lowest for any month of that year — and had, in fact, declined by as much as 6%.
As a result, in the same month of 2012, the incremental growth was robust. But over the two-year period, that is between October 2010 and 2012, the rise in manufacturing output worked out to a mere 3.1%. Clearly, the massive dip in the receding fiscal served to exaggerate the performance a year later.
In the other two sectors — mining and electricity — the October 2012 numbers are not much to crow about, again underscoring the fact that industrial production is still in the doldrums. Mining output has been only fractionally down in the latest month at 0.1%; this is on top of a decline of 5.9% a year ago; obviously the low base has not come to the rescue of the mining production in a statistical sense as in the case of manufacturing.
In power, the rate of generation has been flat at around 5.5% now and in the same month of the previous year. Overall, the seemingly hefty surge in the general index of industrial production now can be attributed to a “statistical illusion" rather than due to any turnaround in the underlying realities that have dogged the industrial economy.
This conclusion is reinforced by an analysis of the industrial index based on the use-based classification; there has been a let-up in some segments or the low base has given a boost to the growth rate and where there has been an acceleration, the rate has been rather modest.
Thus, in respect of basic goods and consumer goods, there was a pick-up during October 2012 — to the tune of 4.1% and 13.2%, respectively. This was made possible by the fact that, a year ago, the growth rate was only 1.2% in basic goods and 0.1% in consumer goods.
With regard to capital goods and intermediate goods, the severe setback during this month in 2011 has been responsible for a vastly improved tempo in the same month of the current year — from -26.5% to 7.5% in capital goods and from -8.4% to 9.4% in intermediate goods.
Taking a holistic view, the October 2012 data relating to industrial production do not support the thesis that industrial growth has bottomed out. For one, the climb of 8.2% may well be a flash in the pan. For, in the six preceding months of 2012-13, the growth rate has been very low, ranging between a high of 2.5% in May and a low of -2% in June.
For another, the trend growth for these seven months was a measly 1.2%, which is even lower than the dismal 3.6% for this period of the preceding year. In a word, the slowdown syndrome persists in the industrial sector and one should not read too much in the October 2012 IIP numbers.