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Green shoots of recovery on horizon for Indian industry

"The green shoots of recovery in the economy now really seem to be on the horizon. Even though India’s growth rate is considered very high by global standards – 7.4 per cent – the fact is, that many sectors are still growing at a glacially slow pace. For instance, manufacturing which has been traditionally a labour intensivesegment has been moving at a minuscule rate despite the overall growth being so high. Similarly, exports have been plummeting downwards for the last 17 months.There are some indications, however, that this phase may finally be over and output may be picking up again. And these indicators are several sets of new data.These include the Nikkei India Purchasing Managers Index (PMI), a Reserve Bank of India study on corporate performance and even the mixed signals from thelatest car sales index. The first of course is the PMI which shows that manufacturing rose to a three month high in June on the back of new domestic and export orders. It came to 51.7 in June from 50.7 in May. The 50 point mark separates contraction from expansion. This is the sixth month in a row that it is above the 50 point mark. In December last year, it had fallen below 50 but since then it has consistently been higher, indicating that there is sustained expansion in the area of manufacturing.The author of the report says the domestic market continues to be the main driver of growth as the Indian economic upturn provides a steady stream of new business. New foreign orders also rose in June but lackluster global demand remains a problem for Indian manufacturers, it was stated. Significantly, on the export side, new orders increased in June, offsetting the decline seen in May, the first in 32 months.The second set of data that is providing some hope for industrial revival is an RBI study on corporate performance. It goes to the extent of saying that privatecorporate sector has “signaled a turnaround”and recorded positive sales in the fourth quarter of 2015-16 (January to March). This is after a decline for four successive quarters earlier. It says operating profit growth continued to improve over all sectors during this period as a result of higher sales growth and dip in rawmaterial prices. Aggregate sales rose by 2.3 per cent after having contracted in the previous four quarters. Sales improved for the manufacturing and IT sectors but moderated for other non- IT services. Net profit grew by 16.4 per cent as against 15.9 per cent in the previous quarter.And finally even the car sales index is good news even though it appears to show a decline in sales in June. This dip is actually due to problems in the productiondelays at Maruti, and not a fall in real demand.Virtually all other manufacturers recorded a rise in sales except for Honda which has been hit by the shift to petrolvariant models. Maruti had to slow down output due to a fire in its component supplier, Subros. It has not reduced production owing to a fall in demand for itsvehicles which still have a buoyant response in the market. All other market players including Hyundai, Mahindra, Toyota and Tatas recorded a significantincrease in output during the month.POSITIVE OUTLOOKBesides, the outlook is positive due to hopes of a bountiful monsoon and the implementation of the seventh Pay Commission for government employees. The question is, are these indicators really green shoots of growth or will they just wither away in the months to come. The fact is, that with the prospect of widespread rainfall during this monsoon, it looks as if demand is set to rise especially in rural areas. This in turn will bring about a more sustained revival in the manufacturing sector which is truly the driver of the economy even though services now accounts for the biggest chunk of GDP. Even so, one will have to wait and watch for another month to be really sure that the recovery is on track.(Sushma Ramachandran is a senior journalist and distinguished commentator specialising in economic affairs and business.)"

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