The government of India announced the latest IIP (Index of Industrial Production) numbers. It is good to see that industrial growth for the country was 3.7% in January. This was much better than the 2.5% seen during the previous month.
While 3.7% is more than 2.5%, but it still indicates that the country's industrial growth is slowing down. Gone are the double digit numbers that we saw during the same period last year. Just for reference the industrial growth for January last year was a whopping 16.8%.
Some have cited the base effect as a reason for such slower numbers. According to them, growth has not really slowed down but in reference to the higher numbers seen last year, the growth appears to be sluggish. However, slowing industrial growth is a matter of concern for the Finance Minister.
To control inflation, the RBI has been raising interest rates. But a direct side effect of higher interest rates is slower industrial activity. And ironically, this industrial activity is what would help in eliminating the supply side bottlenecks which can control the inflation. It appears like a vicious circle. And the more disturbing part is that the RBI plans to raise interest rates further. This would further impact the industrial activity of the country.
A country's industrial health is important for its economic growth. The part that showed the dismal performance was the mining and the manufacturing sectors. Only electricity generation showed improvement. The country's mining sector has also witnessed a slowdown due to strict environmental laws that have resulted in huge delays in getting projects approved. Higher interest rates coupled with higher input prices have resulted in slowdown for the manufacturing sector.
We just hope that the government is able to streamline its processes and procedures soon. And find ways to boost industrial activity. Otherwise the ambitious targets that the Finance Minister has set for the GDP growth may just remain a dream and not get converted to reality.