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India's industrial sector UPSC NOTE

 Growth contributors

  • India’s factory output growth slowed to 4.9% in March from a downgraded 5.6% uptick in February, despite benevolent base effects from the previous year when the Index of Industrial Production (IIP) had shrunk 1.9%. 

  • Output from mines slid to a 19-month low growth of 1.2%, while manufacturing growth picked up from 4.9% in February to 5.2%, still marking a five month-high. 

  • Electricity generation rose 8.6% but over a contraction in March 2023

  • The National Statistical Office, which will release fresh GDP growth estimates for 2023-24 this month end, will thus factor in a 5.8% uptick in industrial output through FY 2023-24, moderately higher than the 5.2% rise recorded in the previous year. 

  • Most of this annual increase came from mining, up 7.5%, while manufacturing saw a milder pick up to 5.5% from 4.7% in 2022-23 and electricity generation growth eased to 7.1%. 

  • Production growth was strongest for capital goods as well as infrastructure and construction goods for the second straight year — not surprising given the ramp up in government infrastructure spends to pump prime the economy till private capex recovers.

Private influence

  • However, for private investments to take over the economy’s growth engine, household consumption signals are critical and there is little comfort here for the second year in a row. 

  • Production of consumer durables and nondurables rose just 3.6% and 4%, respectively, on top of a meagre 0.6% and 0.7% uptick in 2022-23. 

  • This matches with the 3% growth estimated in private consumption spends over last year, and their production this March was still below pre-COVID levels. 

  • Hopes of an above-normal monsoon may prop up rural demand dented by last year’s erratic rainfall, although tight credit conditions could impair urban consumption. 

Concerns

  • As some economists have stressed, consumption recovery since the pandemic has been uneven, driven by demand for higher-end goods and services from upper-income households, while lower-income homes have turned reluctant spenders even for fast-moving consumer goods. 

  • Job creation and real wage growth for those already employed are imperative for a broad-based demand recovery that triggers private capex. 

  • The concern here is that employment-intensive manufacturing segments such as apparel, computers and electronics, furniture and leather products, have contracted in 2023-24, with weaker exports only explaining part of this downturn. 

Way forward

  • The latest IIP data also reflect flagging momentum — growth slid to a three-quarter low of 4.9% between January and March. 

  • The next government must prioritise addressing the broader challenges haunting hesitant consumers and reviving platforms for reticent investors to voice their concerns freely.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: India's industrial sector UPSC NOTE
India's industrial sector UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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