Don’t let the small 0.4% year-on-year contraction in the December 2016 Index of Industrial Production (IIP) fool you. The fact of the matter is that the index was lower in December 2016 than in December 2014. And it was a piffling 1.8% higher than what it was in December 2011, five years back.
Why look only at the month of December every year? Because industrial production is affected by seasonal factors and it’s best to compare the same months every year.
It gets worse. The index of manufacturing in December 2016 is lower than what it was in December 2011. Did the “demon” in demonetisation deliver this terrible blow to manufacturing?
That’s not all. The index of consumer durables in December 2016 was lower than what it was in December 2009, seven years ago. Consumer non-durables demand is steadier, but even here the December 2016 index of consumer non-durables is lower than what it was in December 2011. The accompanying chart has all the dismal details. How much of this slump is due to a demand slowdown, how much due to competition from imports and how much on account of demonetisation is anybody’s guess.
As for capital goods production, it’s subject to large month to month variations. But it’s worth mentioning that the capital goods index, which is considered as a proxy for investment demand in the economy, was at 212.9 in December 2016, lower than in December 2007, when this index was at 236.6.