S Gangadharan 
 
The index of industrial production for March 2008 makes a grim reading, with the overall growth rate slackening to a mere 3% from its year ago level of 14.8%.

All the three constituent sectors had put up a disappointing performance, with the tempo in output falling to less than half of what it was during the same month of 2007. In particular, the heavyweight in the index - manufacturing- had fared dismally.

However, the picture was not one of unrelieved gloom.

The average rate of industrial output during 2007-08 was quite satisfactory at 8.1%.

Though it was far short of the preceding year’s 11.6%, the increase was broadly in conformity with the rate notched up in 2004-05 and 2005-06.

When seen in perspective, the good show put out by the industrial sector in 2006-07 was out of tune with the general trend and, in this sense, it was an aberration of sorts.

For the same reason, it would be too much to expect that this “bucking-the-trend” would be repeated in the following year.

In the event, what was achieved in the matter of industrial output should be termed gratifying.

One hopes the industrial production figures for March 2008 are not a precursor of things to come.

Only if this trend persists, it should engender concern.

There was certainly a setback during that month across-the-board - growth rate in mining decelerating to 3.8% from 8% a year ago, in electricity to 3.7% from 7.9% and in manufacturing to a mere 2.9% from 16%.

But, statistically viewed, the exceptionally robust growth in March 2007 had something to do with the slowdown a year later.

The high-base effect had unduly depressed the incremental rate registered in the latest month.

Also, it should be noted, the general index as well as the two components of the industrial index was substantially revised upward and these inflated figures were used to determine the percentage increase in March 2008.

If the provisional index for March 2007 - general and for the two sectors( for electricity, both the quick and revised index had remained the same), mining and industry - is used to work out the rate of change in March 2008 - the picture is more gratifying.

In stead of the 3% rise during the latest month, the rate stands higher at 4.7% and for manufacturing, as against 2.9%, the actual works out to 4.7% while for mining, the growth would jump from 3.8% to 5.7%.

In other words, the comparison is vitiated if the quick estimates are compared with the revised data of the preceding year; it would be more appropriate to use the quick estimates for the two periods.

This point would be clear from the quick and revised index for March 2007 --- general index at 284.5 (quick) and at 289.1 (revised); mining at 192.8 (quick) and at 196.2 (revised) and manufacturing at 305 (quick) and at 310.3 (revised).

It should also be pointed out, that for March 2007, the initial estimate of the increase was 12.9%, which is now revised to 14.8%.

Besides, it is wrong to infer much from one month’s data. A better approach would be to average out the figures on a cumulative basis to evaluate the underlying trend.

Also, bearing in mind the exceptional nature of 2006-07, we must judge the industry’s production track record.

The average annual rate of growth in the industrial output index was of the order of 8.1% in 2007-08; in manufacturing, it was 8.6 per cent, which is quite gratifying as it is broadly in consonance with the rates notched up in 2004-06. In mining and electricity too, the general trend in production in the last fiscal was satisfactory.

A better insight can be had from the use-based classification of the index of industrial production. The bright spot is the continued sterling show put up by the capital goods segment.

Its annual growth rate has consistently topped the 13% mark in recent years, and was as high as 18.2% in 2006-07.

In 2007-08, too, though the growth rate had flagged, it was still handsome at 16.5%.

This suggests that there is no let-up in investment in the economy; thus the foundation is being laid for even stronger growth in industry and infrastructure in the future.

In basic goods, the trend in growth rate is satisfactory; at 6.9% in the last fiscal, it was less than what it was in 2006-07.

In intermediate goods, the story is similar, with signs of deceleration in 2007-08 in relation to the preceding year but still the incremental growth rate may be deemed good.

In consumer goods, a mixed picture prevailed in 2007-08.

While the heavyweight - consumer non-durables - managed to maintain a satisfactory tempo of production, upwards of 8% — the durable sector plunged in to negative zone last year; in this case, production suffered as setback (-1.0%), while in the previous year, output grew at the rate of 9.2%.

Source : DNAIndia