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Reforms should be expedited for V-shape recovery

Is industrial recovery on the horizon? One can’t say for sure at this stage, but the deep contraction that set in in April is certainly receding. So, a contraction of 16.6 per cent in the index of industrial production (IIP) in June, though very bad, doesn’t look so awful when seen in the context of -57.2 per cent growth in April, the month worst affected by the corona-induced lockdown.

The quick estimates of IIP released by the Ministry of Statistics and Programme Implementation yesterday showed a decline of 35.9 per cent in the April-June quarter against 3 per cent in April-June 2019. Manufacturing, which has almost 78 per cent weight in the IIP, was very badly hit, declining 67.2 per cent in April and 17.1 per cent in June. The cumulative growth in the April-June quarter was -40.7 per cent, according to an official press release.

The IIP quick estimates are released on the 12th of every month (or previous working day if 12th is a holiday) with a six-week lag. These are compiled with data received from source agencies, which in turn receive the data from the producing factories and establishments.

In view of the preventive measures and announcement of nationwide lockdown by the government, a large number of the industrial sector establishments were not operating from the end of March. This has had an impact on the items being produced by the establishments during the period of lockdown, the press release said. “With the lifting of restrictions in the subsequent periods, industrial activity is resuming.”

The recovery, however, is quite slow and highly uneven. Segment-wise disaggregation shows the best growth in, not unexpectedly, in the category ‘manufacture of pharmaceuticals, medicinal chemical and botanical products’—34.6 per cent. It needs to be noted that for the first quarter of this fiscal there was contraction even in this segment, the growth being -5.3 per cent.

The only other segment to show positive growth in June was tobacco, 4.5 per cent, but in the first quarter it was -47.8 per cent. In fact, no segment was in the black in terms of quarterly growth.

Mining and electricity were also in the red for both June and the April-June quarter.

On the whole, the IIP remains in the negative territory, with most segments struggling hard to get out of it. Governments, both Central and in states, have announced some liberalizing moves and announcements—opening up agriculture, giving the farmer more choice, privatization. It is time to speed them up for a V-shaped recovery..