On Friday, the ministry of statistics and programme implementation released its first estimates of industrial production for the month of August. Given that the index of industrial production (IIP) was 2.7 per cent higher than it was for the corresponding month in 2011, some were tempted into declaring that the worst was over, and that the long bottoming-out of the Indian manufacturing sector was finally over.
However, such claims are considerably premature. Similar statements were made after a positive blip in the index earlier this year - the figure for May 2012, for example, stands at 2.5 per cent growth year-on-year - which eventually proved to be an illusory trend.
It would be very dangerous for the government and the central bank to assume that these most recent data are in any way different.
Looking at the components of the index is the best way in which to demonstrate that a full recovery is still far off. True, some sub-sectors of manufacturing have shown surprisingly robust growth - refined fossil fuels, for example, have grown at 5.9 per cent year-on-year. These have together pushed manufacturing growth up to 2.9 per cent year-on-year.
It is worth noting, however, that growth in electricity, which has consistently propped up overall IIP growth, declined in August to 1.9 per cent year-on-year.
The most worrisome aspect, however, becomes clear when the use-based classification of industrial output is examined. capital goods output has declined 1.9 per cent compared to August 2011.
Growth has come from consumer goods, at 5 per cent; but when it comes to predicting the future trend in manufacturing,
it is capital goods output that counts. The past 12 monthly figures for capital goods output growth have been negative, save only one. Not since June 2011 has the output of capital goods seen strong growth.
Clearly, the investment slowdown that has caused the collapse of Indian manufacturing is still in effect. It is worth remembering, too, that any recovery in investment, and thus capital goods output, will see an effect on overall industrial growth only with a lag - so the slowdown in manufacturing is not something that is likely to go away any time soon.
The problems this creates for the central bank, in particular, are considerable. The dilemma that has faced it for much of this year continues to hold: its twin objectives, of restoring growth to near its potential level and controlling inflation, are still pointing its policy in two different directions.
Given the problems with New Delhi's attempt to put a National Investment Board in place, the recovery of investment clearly will depend upon more accommodating monetary policy. However, inflationary pressures persist in the Indian economy.
The central government's fiscal deficit, the biggest bar to an aggressive monetary easing, shows only limited signs of being brought under control. True, diesel subsidies were reduced - but that was structured as a one-time action, rather than as a road map towards subsidy control.
Meanwhile, disinvestment continues to be held up, because of worries about the prices that public sector undertakings would fetch, and revenue from spectrum auctions this year is not likely to be much higher than what has already been budgeted for. Given these facts, it is difficult to imagine a manufacturing recovery this year.
However, such claims are considerably premature. Similar statements were made after a positive blip in the index earlier this year - the figure for May 2012, for example, stands at 2.5 per cent growth year-on-year - which eventually proved to be an illusory trend.