Indian industry, it would appear, has once again turned a corner. According to figures released by the Central Statistical Organisation, after three years of poor or indifferent performance starting 1996-97, the industrial sector has experienced a robust recovery during 1999-2000. The growth in the general index of industrial production, which stood at 8.4 per cent in 1994-95 and 12.8 per cent in 1995-96, had fallen to 5.6, 6.6 and 3.9 per cent respectively, in the subsequent three years. The figure for 1999-2000, however, points to a return to a higher rate of growth of 8.0 per cent . What has been more encouraging from the point of view of government and industry is that this recovery has occurred predominantly in the manufacturing sector, where the rate of growth has risen from 4.3 to 9.0 per cent between 1998-99 and 1999-2000.
 
The developments underlying these movements in the index of industrial production have generated buoyant expectations in the corporate sector. According to a survey of "business confidence" recently conducted by the FICCI, 70 per cent of the 424 respondents expected industrial growth to rise from its 8 per cent level in 1999-2000 to 10 per cent this financial year. Capacity utilisation, a majority of the respondents felt, would also rise to a comfortable 83 per cent, putting an end to the period of slow growth in production.
 
There are, however, three  factors calling for caution when interpreting the implications of the industrial growth figures released by the CSO. First, the pattern of industrial growth underlying the overall improvement in growth is disconcerting.  While there are signs of a sharp recovery in both intermediate goods and consumer durables production, with rates of growth rising from 5.9 to 15 per cent and 4.7 to 12.2 per cent respectively, the performance of the capital goods sector has been disappointing with growth actually declining from 11.8 to 4.8 per cent. Thus, the revival of demand and utilisation appears to have been inadequate to spur investment, with demand for capital goods having decelerated during the same period.
 
Second, despite the revival of industrial demand in a more open trading environment, non-oil imports have registered an extremely low rate of growth of just 1.36 per cent during 1999-2000. If recent experience is any guide, it is likely that once we deduct bulk imports and certain export-related imports, such as imports made by the gems and jewellery industry, from total non-oil imports, the rate of growth would even be lower. This points to a stagnation in imports required to service domestic industrial production. It is widely accepted that import liberalisation has been accompanied by a sharp increase in the import intensity of domestic industrial production. This is particularly true and quite obvious in a high-growth sector like consumer durables, where international brands assembled in India have substantially displaced indigenous  products. This makes the almost contrary movements in industrial production and non-oil imports a puzzling development to say the least.
 
Finally, even before the extent and nature of the recovery in the industrial sector could be fully assessed, there are signs of a slackening of demand in certain industries. The automobile industry, where sales figures are quick to come in, is a case in point. It is widely accepted that the passenger car segment of this industry epitomised the recovery in 1999-2000, with sales having risen from 4,09,951 units to 6,38,815 units or by 55 per cent. However, there has reportedly been a slump in sales in April 2000, with despatches  relative to March having fallen by 31.2 per cent in the case of Maruti, 18.4 per cent in the case of Daewoo and 11.4 per cent in the case of Hyundai. While, this decline may be partly explained by the bunching of sales at the end of the previous year because of last minute decisions to exploit the depreciation benefit for tax purposes, the magnitude of the decline in all cases does give some cause for concern. The magnitudes in fact seem reason enough to interpret this trend as evidence of an incipient slump in demand.