Economic Slowdown

Indian industry is on life support – and the government’s denial of this isn't helping

Multiple indicators, from factory output to low demand for bank credit, show that the manufacturing sector is in the doldrums.

Prime Minister Narendra Modi, riding to power on the promise of economic growth, launched his Make in India pet project in September 2014 to boost manufacturing and reduce dependence on imports.

The project aimed to create more jobs by enhancing India’s potential of becoming a manufacturing hub, specially for electronics, in the next three years.

Two years on, however, the results of the government’s push to industry have been lacklustre.

The numbers talk

In the last year, the index of industrial production – which measures the growth in various sectors such as mining, electricity and manufacturing by surveying data provided by companies – has declined steeply. As compared to 9.9% month-on-month growth in October 2015, there was a contraction of 0.7% in August (from July). This was the second consecutive decline in the index, which fell by 2.5% in July.

Though the representativeness of the index of industrial production has been questioned, a Mint report on Wednesday said that the April-August performance is the worst in a decade – something the government cannot afford to ignore.

Optimistic government

Despite these signs of a slowdown in industry, the commerce and finance ministries remain optimistic about India’s growth potential. They claim that the falling exports and slowing industry data are going to stabilise in the near-term.

“At the moment, the fall is arrested,” Commerce Minister Nirmala Sitharaman said on Monday after two consecutive months of falling exports. “We will only be looking at steady growth. It may be slow but steady.”

Before this, exports had declined for 17 consecutive months before picking up in June.

In September, Finance Minister Arun Jaitley insisted that the steel industry, reportedly the biggest contributor to non-performing assets of public-sector banks, was showing signs of a turnaround. The month before that, he said India had defied the global slowdown and seemed poised for high-growth on the back of services sector.

However, recent data – including that from the Reserve Bank of India – contradicts these statements.

The latest RBI data points to a slowdown in the manufacturing sector as its order books (where orders are registered) have declined year-on-year. A negative growth of 2.6% is projected for the last quarter of the 2016-'17 financial year from the last quarter of the previous fiscal year. In comparison, the 2015-'16 financial year had started on a high, with 10.2% growth in the first quarter of that year.

“The demand conditions in the Indian manufacturing sector continued to remain subdued, as can be reflected from the trajectory of capacity utilisation,” the RBI said in its monthly statement in September. “Overall, Indian manufacturing sector did not appear to witness any turnaround, as indicated by the survey results.”

Outlook grim

A closer look at the index of industrial production numbers for the manufacturing sector paints an even grimmer picture. The manufacturing index of industrial production has been declining steadily and saw a negative growth of 4.7% growth in the first quarter of financial year 2016-2017.

A report in the Indian Express on Wednesday said that bank credit or loans to the industrial sector had decreased by 0.2% year-on-year in August – slipping into negative for the first time in a decade.

An examination of the gross bank credit to the industry based on data from RBI’s September monthly review (in the chart above) showed that credit to sectors like textiles, construction, petroleum and beverages declined between 1-7% in the current financial year.

A massive 13.3% decrease in credit was recorded in the food processing industry, while chemicals, gems and vehicle industry received marginally more credit.

While Jaitley has repeatedly sought a reduction in interest rates to boost the Indian economy and new RBI Governor Urjit aPatel cut repo rates by 25 basis points earlier this month, economists do not think this will fix the manufacturing sector. The repo rate is the rate at which the RBI lends to banks. A lower repo rate increases banks’ access to credit and so should result in lower interest rates for customers.

“The demand in the economy over the last couple of years has come down to a level that capacity utilisations are at around 75%,” DK Pant, chief economist at India Ratings was quoted as saying by Indian Express. “In such a scenario, no investor will invest and I don’t think a cut in interest rate can fuel investment.”

No jobs

Another objective of the Make In India program was to create more jobs for the burgeoning labour market in India (by creating a thriving industry), but that has not happened yet either. The annual report by the Ministry of Labour and Employment showed that unemployment in India rose to a five-year-high at 5% in the 2015-'16, while the female unemployment rate was 8.7%.

“In the manufacturing sector, growth has come predominantly from improvement in efficiency and not too much due to a rise in output, so the growth in employment is much slower,” Proban Sen, former chairman, National Statistical Commission told the Hindu. "Second, the pattern of employment in the corporate sector is changing. Companies are looking to hire productive workers so there is a reduction in absorption of labour.”

All this points to a difficult time ahead for the Indian industry and the Modi government would do well to acknowledge the problem rather than arguing over numbers, as Dinesh Unnikrishnan summed up in this Firstpost article:

Clearly, there is no magic wand with finance minister Arun Jaitley to make the problems vanish in a moment. But, he could engage with the private sector more actively to put money on the table. Also, the public spending that acted as a major catalyst needs to continue with pace. Despite the hype over the Modi government’s investment focus, the fact remains that there has not been a substantial jump in private investment to support growth. The government needs to acknowledge the problem and see what can be done to crack it.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

India’s urban water crisis calls for an integrated approach

We need solutions that address different aspects of the water eco-system and involve the collective participation of citizens and other stake-holders.

According to a UN report, around 1.2 billion people, or almost one fifth of the world’s population, live in areas where water is physically scarce and another 1.6 billion people, or nearly one quarter of the world’s population, face economic water shortage. They lack basic access to water. The criticality of the water situation across the world has in fact given rise to speculations over water wars becoming a distinct possibility in the future. In India the problem is compounded, given the rising population and urbanization. The Asian Development Bank has forecast that by 2030, India will have a water deficit of 50%.

Water challenges in urban India

For urban India, the situation is critical. In 2015, about 377 million Indians lived in urban areas and by 2030, the urban population is expected to rise to 590 million. Already, according to the National Sample Survey, only 47% of urban households have individual water connections and about 40% to 50% of water is reportedly lost in distribution systems due to various reasons. Further, as per the 2011 census, only 32.7% of urban Indian households are connected to a piped sewerage system.

Any comprehensive solution to address the water problem in urban India needs to take into account the specific challenges around water management and distribution:

Pressure on water sources: Rising demand on water means rising pressure on water sources, especially in cities. In a city like Mumbai for example, 3,750 Million Litres per Day (MLD) of water, including water for commercial and industrial use, is available, whereas 4,500 MLD is needed. The primary sources of water for cities like Mumbai are lakes created by dams across rivers near the city. Distributing the available water means providing 386,971 connections to the city’s roughly 13 million residents. When distribution becomes challenging, the workaround is to tap ground water. According to a study by the Centre for Science and Environment, 48% of urban water supply in India comes from ground water. Ground water exploitation for commercial and domestic use in most cities is leading to reduction in ground water level.

Distribution and water loss issues: Distribution challenges, such as water loss due to theft, pilferage, leaky pipes and faulty meter readings, result in unequal and unregulated distribution of water. In New Delhi, for example, water distribution loss was reported to be about 40% as per a study. In Mumbai, where most residents get only 2-5 hours of water supply per day, the non-revenue water loss is about 27% of the overall water supply. This strains the municipal body’s budget and impacts the improvement of distribution infrastructure. Factors such as difficult terrain and legal issues over buildings also affect water supply to many parts. According to a study, only 5% of piped water reaches slum areas in 42 Indian cities, including New Delhi. A 2011 study also found that 95% of households in slum areas in Mumbai’s Kaula Bunder district, in some seasons, use less than the WHO-recommended minimum of 50 litres per capita per day.

Water pollution and contamination: In India, almost 400,000 children die every year of diarrhea, primarily due to contaminated water. According to a 2017 report, 630 million people in the South East Asian countries, including India, use faeces-contaminated drinking water source, becoming susceptible to a range of diseases. Industrial waste is also a major cause for water contamination, particularly antibiotic ingredients released into rivers and soils by pharma companies. A Guardian report talks about pollution from drug companies, particularly those in India and China, resulting in the creation of drug-resistant superbugs. The report cites a study which indicates that by 2050, the total death toll worldwide due to infection by drug resistant bacteria could reach 10 million people.

A holistic approach to tackling water challenges

Addressing these challenges and improving access to clean water for all needs a combination of short-term and medium-term solutions. It also means involving the community and various stakeholders in implementing the solutions. This is the crux of the recommendations put forth by BASF.

The proposed solutions, based on a study of water issues in cities such as Mumbai, take into account different aspects of water management and distribution. Backed by a close understanding of the cost implications, they can make a difference in tackling urban water challenges. These solutions include:

Recycling and harvesting: Raw sewage water which is dumped into oceans damages the coastal eco-system. Instead, this could be used as a cheaper alternative to fresh water for industrial purposes. According to a 2011 World Bank report, 13% of total freshwater withdrawal in India is for industrial use. What’s more, the industrial demand for water is expected to grow at a rate of 4.2% per year till 2025. Much of this demand can be met by recycling and treating sewage water. In Mumbai for example, 3000 MLD of sewage water is released, almost 80% of fresh water availability. This can be purified and utilised for industrial needs. An example of recycled sewage water being used for industrial purpose is the 30 MLD waste water treatment facility at Gandhinagar and Anjar in Gujarat set up by Welspun India Ltd.

Another example is the proposal by Navi Mumbai Municipal Corporation (NMMC) to recycle and reclaim sewage water treated at its existing facilities to meet the secondary purposes of both industries and residential complexes. In fact, residential complexes can similarly recycle and re-use their waste water for secondary purposes such as gardening.

Also, alternative rain water harvesting methods such as harvesting rain water from concrete surfaces using porous concrete can be used to supplement roof-top rain water harvesting, to help replenish ground water.

Community initiatives to supplement regular water supply: Initiatives such as community water storage and decentralised treatment facilities, including elevated water towers or reservoirs and water ATMs, based on a realistic understanding of the costs involved, can help support the city’s water distribution. Water towers or elevated reservoirs with onsite filters can also help optimise the space available for water distribution in congested cities. Water ATMs, which are automated water dispensing units that can be accessed with a smart card or an app, can ensure metered supply of safe water.

Testing and purification: With water contamination being a big challenge, the adoption of affordable and reliable multi-household water filter systems which are electricity free and easy to use can help, to some extent, access to safe drinking water at a domestic level. Also, the use of household water testing kits and the installation of water quality sensors on pipes, that send out alerts on water contamination, can create awareness of water contamination and drive suitable preventive steps.

Public awareness and use of technology: Public awareness campaigns, tax incentives for water conservation and the use of technology interfaces can also go a long way in addressing the water problem. For example, measures such as water credits can be introduced with tax benefits as incentives for efficient use and recycling of water. Similarly, government water apps, like that of the Municipal Corporation of Greater Mumbai, can be used to spread tips on water saving, report leakage or send updates on water quality.

Collaborative approach: Finally, a collaborative approach like the adoption of a public-private partnership model for water projects can help. There are already examples of best practices here. For example, in Netherlands, water companies are incorporated as private companies, with the local and national governments being majority shareholders. Involving citizens through social business models for decentralised water supply, treatment or storage installations like water ATMs, as also the appointment of water guardians who can report on various aspects of water supply and usage can help in efficient water management. Grass-root level organizations could be partnered with for programmes to spread awareness on water safety and conservation.

For BASF, the proposed solutions are an extension of their close engagement with developing water management and water treatment solutions. The products developed specially for waste and drinking water treatment, such as Zetag® ULTRA and Magnafloc® LT, focus on ensuring sustainability, efficiency and cost effectiveness in the water and sludge treatment process.

BASF is also associated with operations of Reliance Industries’ desalination plant at Jamnagar in Gujarat.The thermal plant is designed to deliver up to 170,000 cubic meters of processed water per day. The use of inge® ultrafiltration technologies allows a continuous delivery of pre-filtered water at a consistent high-quality level, while the dosage of the Sokalan® PM 15 I protects the desalination plant from scaling. This combination of BASF’s expertise minimises the energy footprint of the plant and secures water supply independent of the seasonal fluctuations. To know more about BASF’s range of sustainable solutions and innovative chemical products for the water industry, see here.

This article was produced by the Scroll marketing team on behalf of BASF and not by the Scroll editorial team.