AIR spotlight summary on “Growth in Industrial Output”.

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AIR spotlight summary on “Growth in Industrial Output”.


 

Introduction

  • The industrial output has shown a remarkable recovery as per the data of Central Statistics Office (CSO), it has gone up to 8.4%. This is very positive development in the economy because there were lot of worries that the economy was slowing down especially after the introduction of GST.

Industrial Growth

  • The industrial growth was not showing any positive signs earlier and now it showing an 8.4% growth and the manufacturing sector showing growth rate of 10.2%. There were concerns about high corporate leverages in the economy and the gross fixed capital formation was also not increasing. Now it is believed that gross fixed capital formation is likely to increase by 4% and there is 9.4% growth in the capital goods. It is likely to believe that GST has been taken in a positive direction by the economy. The reduction of corporate taxes to 25% in the previous budget has yielded better effect on the economy.
  • 16 of the 23 sectors have shown a positive growth which is the reason behind the growth in industrial output. The construction and the real estate sector was suffering from last 2 to 3 years, post demonetisation it was worst affected with drop in sales. The segments related to the construction sector like steel, cement and others did receive a boost as the government has been making continuous investments in the infrastructure sector which is believed to have a crowding in effect in the economy and there by result in higher economic growth. So the construction and infrastructure sector is yielding positive results today.

Employment Generation 

  • The employment generation has been a continuous worry and biggest challenge for the government. The government has been taking several initiatives to generate more employment like Stand-up India, MUDRA Scheme, Skill Development and Make in India. What was still needed was the domestic growth in the industry. Since IIP index was not picking up and there was not sufficient industrial growth, it did not create sufficient amount of employment. The recent growth in industrial output is likely to generate more employment. The recent clearance for FDI in single brand retail will help companies invest in India and likely to generate employment as well. There are vacancies in many private and public sector especially in the government institutions and there is a need to first fill these vacancies to provide employment.
  • There is an information asymmetry in the economy. A Nation Labour Employment Exchange model along the line of National Stock Exchange or Bombay Stock Exchange was proposed to the government which the government is yet to consider. Here the people and firms register themselves on a national level where firms declare the skills they require and people sell their skills or labour hours required by the firms. For example if a doctor wants to serve for 1 or 2 hrs and if a hospital has a requirement, then the doctor can serve there. These kinds of arrangements are set up in different countries.

Structural Reforms in the Economy

  • There have been structural reforms in the economy like the demonetisation, GST and JAM Trinity which brought changes in the economy with integration of people in the banking system and digitisation of the economy.
  • The growth in any sector be it agriculture or industry contributes to the GDP. As the GDP grows, the economy grows and the tax revenues will also increase. With increase in tax revenues the government has more funds to allocate for social welfare. Post demonetisation and GST, there is larger tax compliance which means increase in tax collection for the government.
  • There is a concern about rising inflation which has gone above 5.21% because of the rise in vegetable prices and fuel prices.
  • The government needs to ensure that the industry receives sufficient amount of credit and if the government in the coming budget can give incentives to the industry, it can bring domestic growth and development.