India’s Index of Industrial Production (IIP) data for March 2013 shows the slowest annual Industrial growth in 20 years, and the second lowest since 1982 (from when IIP data is available). At a measly 1% growth over last year, our average IIP number over the year is at the lowest since 1991-92. (Average IIP number is the IIP average for the whole financial year, which removes intra-year seasonality)
Data Source: IIP from MOSPI and RBI. Click for a larger picture.
Remember, 1991-92 was the last major crisis in India, when we have a Balance-of-payments issue of gargantuan proportions. The government had to resort to emergency borrowing from the IMF and had to devalue the rupee, remove the huge licencing requirements for every industry and free the economy. Growth only started after that and it took three years to reach heady levels again.
Looking at the components, we seem to have a very “secular” turn downwards:
Data Source: IIP from MOSPI and RBI. Click for a larger picture.
Mining is at its lowest ever growth number since 1982. This is likely to be the impact of court orders to cut mining until license corruption issues are sorted out.
Manufacturing is at its lowest since 1992, and at the second lowest ever. Manufacturing has the highest weight in the index (currently 75%).
Electricity isn’t at a low. Index averages for 2000 to 2003 were lower. But looking at the last big crisis of 1992, we see that electricity IIP growth was then at 8.5%.
Stock markets might not recognise this as a problem as we continue to close in on the all-time highs (just 3% away). You could say they are forward looking and that we have “bottomed out”, or that IIP isn’t a useful number to see, or that an annual “average” could be impacted by a problem that was only visible early last year. The last factor isn’t evident in the data (I posted the March 2013 monthly index numbers earlier) and even GDP growth has been very low at 4.5% in the quarter ended Dec 2013.
If it took a change like liberalization to fix the downtrend in 1992, will we need a policy response of that magnitude to fix what seems to be coming our way?
Note:The March 2013 IIP Numbers will be revised twice – once in June 2013 and once more in August 2013. The problem with IIP numbers has been large revisions in both directions. But recently, most revisions have only been downward, and I expect the general trend to point to a new crisis.
