Factory flaw

Predictions for growth in the industrial sector this May,as compared with the same month in 2010,were mostly in the range of 8 per cent. Some analysts stuck their necks out and suggested it might go as low as 7 per cent. Thus few were prepared when the real numbers were released on Tuesday. They indicated that industrial growth — as represented by the index of industrial production,or IIP — was as low as 5.6 per cent year-on-year. This number,shockingly low,was driven by a weak performance from the manufacturing and mining sector. Indeed,India’s growth continues to owe practically nothing to the manufacturing sector: in the past half-year,it has contributed less than a single percentage point of GDP growth.

It is not necessary that these lower-than-expected numbers mean India must scale down its overall growth expectations for the entire year — there is some good news,for example,in the robust numbers for consumer demand. Nonetheless,the numbers are a reminder that India’s growth is unbalanced and unsustainable without further reform. Manufacturing growth — and the growth in employment,productivity and wages that comes with a vibrant manufacturing sector — is essential to modernising the economy and moving a large population permanently out of poverty. This requires the next generation of reforms to happen,and to happen fast. It might be useful to step back and remember that when the UPA was re-elected it was supposed that it would use the mandate to extend the reform agenda: to kick-start manufacturing,to finally pass a new Companies Act,to attack the thicket of restrictive labour laws that keep India’s manufacturing constrained.

There are,of course,smaller administrative and governance tweaks that could help manufacturing going till these big-bang reforms are implemented. Coherent,clear application of environmental regulation; a new land acquisition framework for industry; and upped investment in infrastructure,as well as a reduction in red tape. But even such lower-intensity reformist actions seem to have been put on the back burner. UPA 2 seems to believe that nothing is as certain as continued growth,except perhaps for its re-election in 2014. The IIP numbers demonstrate the holes in that assumption. Unless the government makes a genuine effort to prioritise the reform agenda in the remainder of its term,long-term growth will stutter.