Industrial Production dips: Why the Indian economy is still in a fix

This is one statistic that can put the Modi government in a bit of a bind. Days after government statisticians said that India's GDP grew at 7.5 per cent in the October-December 2014 quarter, came the Index of Industrial Production (IIP) numbers that reflected weak growth, underlining the view that the Indian economy is not out of the woods, yet. The IIP data for December 2014 released by the Central Statistics Office on Thursday showed IIP rose just 1.7 per cent in December, against 3.9 per cent the previous month.

The slowdown in numbers may have been a non-event, if not juxtaposed with the revised GDP numbers from the government, which had surprised many. The revised GDP numbers put India ahead of China in GDP growth rate, but many were sceptical of the methodology used to calculate this new growth. The new method is said to take into account improved business efficiency that corporates have built into their businesses. But considering the fact that several corporates are still grappling with low growth in demand, especially in the manufacturing sector, the accuracy of these numbers are being questioned. For instance, in the quarter ended December, engineering and construction giant Larsen & Toubro reported lower than expected growth in net profit, that came in at around Rs 300 crore below what was achieved in the previous year. The IIP data showed that manufacturing, which has a major weightage in the IIP, grew 2.1 per cent in December, auto sales was up just three per cent, while mining fell 3.5 per cent.

The numbers are significant not just because they speak of a harsher reality when compared with the shining growth numbers put out by the government earlier. It also comes a few months after the much-touted "Make in India" campaign, that laid a lot of thrust of boosting manufacturing in India. There is criticism that the government has made such announcements without yet revealing a clear blueprint on how to achieve this. Although business sentiment has definitely improved ever since the Modi government assumed power, the situation on the ground is anything but rosy. While challenges for big industries in India have been spelt out in detail several times earlier, the state of small and medium industries, too, remains bleak. It is no secret that countries such as China have been able to grow their big industries on the back of solid contribution from the small and medium industries.

However, it is an opportune time for the government to reverse some of these trends in the new year, and the biggest opportunity to do so comes with the impending Union Budget on February 28. The government should chart out measures that will help grow businesses, rather than view them, as we have been doing for decades, as enterprises that are to be taxed to fill government coffers. As an industrialist recently revealed, it is not that there aren't enough ideas, or that we don't realise what needs to be done. What is lacking is a "joining of the dots" - the pronouncing of a clear policy, and pursuing it with alacrity, making sure the various agencies involved work in tandem and not at cross-purposes, and to a specific deadline. Only such an effort, sustained over a long period of time, will deliver the results the country is looking for.