There
was after all a hope for industrial
recovery this year, however feeble
it may have been. But it has fallen
flat again on the back of a fresh
export collapse. According to
statistics, the trend of production
of major industries -- excluding
jute textiles-- which account
for 54.11 per cent of the total
weight, shows only 2.6 per cent
growth in the first three quarters
till March this fiscal, according
to a Centre for Policy Dialogue
(CPD) analysis.
This is quite depressing by any
standard if one considers last
fiscal's 9.1 per cent industrial
growth. As the trend today shows,
the industrial growth this fiscal
is set to be lower than 3.2 per
cent of 1998-99, the flood year.
"The dampening effect is not only
because of export slump, but also
due to weak domestic demand expressed
by low inflation rate even after
moderate monetary expansion and
low off-take of credit," said
Dr Debapriya Bhattacharya, executive
director of the CPD.
Although the March-on-March figure
shows industrial growth this fiscal
was at 15.7 per cent, which is
comparable to other years, it
still conceals the fact that March
2002 was the second consecutive
month since January when the Quantum
Index of Production (QIP) actually
dropped. In December this fiscal,
the QIP was 247.12 and then it
edged up to 248.15 in January.
But then it again slumped to 232.64
in February and even lower to
222.46 in March.
"Traditionally the QIP picks up
in December in line with heavy
export of apparels, and then drops
in January before taking off again
in June," said Dr Debapriya. "But
this year, the index increased
in January over that of December,
which was quite unusual and generated
some hopes of recovery. We also
saw some apparel export recovery
in January, coinciding with the
resurgence in US consumer confidence."
In the first three quarters apparel
exports dipped 5.6 per cent and
knitwear fell 2.64 per cent. "Knitwear
is our strong item and its fall
signified that we cannot attribute
our export problems to global
recession alone. The problem is
much deeper whether it concerns
MFA phase-out or export diversification."
Meantime, the production of major
industries shows a mixed trend
during the July-March period of
this fiscal. Cement, pharmaceuticals,
cotton textiles and tea witnessed
production growth. Of them, cement
was robust at 31.41 per cent growth
and so were pharmaceuticals (12.06
per cent) and tea (10.77) per
cent. On the other hand, industries
like fertiliser, paper, matches
and garments witnessed fall in
production. Garments was 4.78
per cent below last fiscal's mark,
fertiliser was 14.08 per cent
and paper was 2.23 per cent less
than the mark of the same period
in last fiscal.
"This mixed trend implies that
even relative growth in domestic
market-oriented industries really
could not pull the overall growth
in the face of export collapse,"
said Dr Debapriya. "The current
situation will once again compel
us to reflect on the strategy
of strengthening export competitiveness
on one hand, and developing the
domestic market-oriented industries
on the other to bring depth in
industrialisation, moving out
from shallow footloose industrial
approach to providing depth to
our industrial structure."
The new generation small and medium
industries may be considered the
missing link in industrial structure
to bring the desired depth, he
said. "It would be interesting
to see how the upcoming budget
will address this issue since
the current public policy support
remains hostage to price related
issues particularly expressed
through exchange rate management,
interest rate fixing, tariff reduction
and cash incentives."
However, the challenge is to go
beyond such short-term measures
and address the structural reform
issues such as improving the trade
supporting infrastructure, financial
and capital market and the labour
market. "Without addressing these
issues the expectation to have
a new generation of industries
will largely be belied and will
delay the second great transition
from trade dependency to investment-propelled
growth," Dr Debapriya said.
