Growth can happen only when there is investment in productive activities and investment can happen when there is an investor-friendly climate
After around 16 months of dreary numbers, the figure for industrial production for October has come at a high of eight per cent on the back of strong manufacturing output and consumer goods offtake.
Higher industrial production figures were expected because of the festive season and low base of October last year, but the high of eight per cent was a surprise. So, is this something to really cheer about? Finance minister P. Chidambaram, who knows best and is very practical, was cautious. He said there are signs of green shoots but he qualified it by saying we would have to see how we go forward in the next four months.
Most economists echoed the same caution and the general view is that the numbers could be back to their low levels in November. The reality is that there is growth, but at a snail’s pace. Growth can happen only when there is investment in productive activities and investment can happen only when there is an investor-friendly climate. Both these seem to still be in scarce supply.
Investments by India Inc. have fallen from 15.1 per cent of GDP to 12 per cent. Corporates had even put off plans to raise `60,000 crore through IPOs between 2009 and October this year despite getting Sebi approval.
The government has made several attempts at dialogue with representatives of business and industry in order to get the manufacturing sector going. There have also been various attempts, going by the numerous seminars and summits organised by business chambers, to see how business can move forward despite the constraints, but obviously all these attempts are not concomitant with the efforts that are really imperative.
India Inc. seems to think that lowering interest rates is the panacea for getting manufacturing and production off the ground. There is no doubt that India has the highest interest rates in the region among the countries with which it has to compete not only in exports, but also domestically where cheap imports from these countries are pushing Indian goods out of their own market. In the telecom sector, for instance, the millions and millions of handsets flooding the market are imported. There is no reason why Indian companies cannot make these handsets. In the power sector, one of the biggest power equipment producers says its order books are lean because of cheap imports.
The immediate need is to deal with the problem of sluggish growth sector by sector and companies within those sectors. Mr Chidambaram could perhaps try getting down to specifics to tackle issues that are holding back growth.
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