There might appear reason for relief. The numbers might, at first sight, appear good. The index of industrial production (IIP) is up 9.1 per cent; that can be calculated as 6 per cent year-on-year. For those already looking for reasons to cheer, this could serve as an excuse: the industrial sector is recovering, the measures taken so far have worked, the government can take its foot off the pedal and start thinking of other things. But such optimism, visible also after the release last month of the previous iteration of the index, is premature. A closer look at the composition of the numbers will make that painfully clear. First, month-on-month figures, once properly adjusted, also appear weak. What pushed the publicised numbers up was capital goods purchases — energised, there is little doubt, by the now-flagging stimulus; and consumer durables, pushed a little further by the fag-end of the Pay Commission windfall for government employees.

Two other points should also give any optimistic observer pause: first, the figures released are for the month pre-Diwali, so that means that people are closing off yearly purchases, de-stocking and re-stocking (and consumers are in festive mood). Second, the base remains low for these figures; the recession has, after all, been on for a while. Only when December comes round, the anniversary of when the first effects of the stimulus began to be seen, will the base recover to something where good year-on-year figures might be a genuine reflection of better times approaching.

... contd.