The policy initiatives taken by the government in the recent months have made the business sentiment buoyant and have generated some optimism. The latest seasonally adjusted annualized growth of industrial output indicate that the growth of the sector could remain positive at around 3 per cent for the current year. Industrial production was moderate in 2011-12 and continued during the current financial year. Industrial growth still remains vulnerable to several domestic factors and external shocks. Infrastructure and energy constraints, decline in demand for India’s exports, and fragile recovery in investment are the risk factors.

In the short run, revival of investment in industry and key infrastructure sectors is the key challenge. Industrial sector has been hit hard by the deceleration in investment for the second successive year. As per the latest first revised estimates of GDP gross capital formation in the manufacturing sector in 2011-12 had declined by 18.8 per cent as compared to 2010-11. Lower foreign direct investment inflows in key industry and infrastructure sectors during April-October 2012 was $ 6.19 billion as against the inflow of $ 18.66 billion during the same period of the previous year. This has further constrained investment in these sectors.

Investment intentions indicated in the industrial entrepreneur memorandum (IEMs) filed, which are lead indicators of likely investment flows to industry, also declined in 2011 and 2012. Notwithstanding a marginal pickup in the gross bank credit deployment into industrial sector in recent months, year on year increase in gross bank credit deployment by end of December 2012 has been 13.8 per cent as compared to 19.8 per cent a year ago.

DSM/UM/MD/RK

(Release ID :92596)

Government policy initiatives to revive industrial investment and address infrastructure and energy constraints, supporting modest output recovery. Government policy initiatives aim to improve business sentiment and support a modest recovery in industrial output, while the industrial sector remains vulnerable to infrastructure and energy constraints, weak export demand, and a fragile investment climate. Key indicators show a marked contraction in manufacturing gross capital formation, reduced foreign direct investment inflows into industry and infrastructure, declining investment intentions signalled by Industrial Entrepreneur Memoranda, and a slowdown in year on year bank credit growth despite a marginal recent pickup.