Industrial devolution,will economy follow?

Manufacturing continues to struggle, clocking growth of 0.5% in March, and rounding off the full-year figure for 2022-23 at 4.5%. This trails the 7% GDP growth rate projected for 2022-23 in the second advance estimates by the National Statistical Office (NSO) by 2.5 percentage points. Yet, it is an improvement over expectation of almost flat manufacturing output (0.6%) in the previous fiscal year. Factory output had stalled in the second and third quarters of 2022-23, which could have been overestimated earlier, apart from a better-than-expected revival in January-March. The Index of Industrial Production (IIP) has been revised upwards for February to 5.8%, after having risen by 5.2% in January. Manufacturing in March rose 6.4% sequentially from the previous month.

Consumption demand pulled down industrial output through the year with both the consumer durables and non-durables segments posting meagre 0.5% growth apiece. The slowdown in consumer durables over the year was more pronounced than that for non-durables, which had bottomed out during the pandemic. Capital goods understandably led the charge, growing 12.9% in 2022-23 after clocking 16.9% in the prior year. This also propped up output of goods used in construction and infrastructure.

The average growth in manufacturing since Covid lockdown restrictions were lifted is in step with overall economic performance. There are two caveats here. One, manufacturing recovered sooner than services, and growth was bound to taper off as contact-intensive services came on stream. And two, industry is the recipient of a big push from the government’s capital expenditure programme. Consumer demand remains a drag, which could delay a private investment resurgence. Benefits of India’s quick recovery on manufacturing exports are also dissipating as the Chinese economy emerges from lockdowns and global trade slows. India’s industrial slowdown is a precursor to its economy losing momentum, unless it can revive domestic consumption.