These developments accompanying the evidence of an industrial recovery, provide adequate grounds for scepticism regarding its sustainability.  The evidence of a deceleration in capital goods production suggests that the recovery has yet to proceed to an extent where it has begun to influence expectations enough to spur investment. And the lack of correspondence between the increase in industrial production and the trend in non-oil imports indicates that the industrial recovery has not been adequate to wipe out inventories of imported intermediates and components, needed for the more import-intensive production characteristic of the liberalised economic environment. When domestic production or assembly is more dependent on imported inputs, producers have to make advance calculations of their likely requirements of such inputs to ensure that they are in a position to meet emerging demand. These calculations must necessarily be based on expectations of such demand. It appears that, even though output in areas like consumer durables has increased during 1999-2000, producers have not found it necessary to increase their stocks of imported inputs for future production. This points to excess stockholding as a result of unrealised expectations of buoyant demand in the past. It appears that the industrial revival over the last financial year has failed to clear these stocks to an extent which necessitated further imports needed to replenish stocks, given expectations of the likely trend in demand in the immediate future.
 
Seen in these terms the recovery in 1999-2000 does appear moderate. It is in the wake of this feature of the revival that the signs of a slump in demand in the automobile industry have to be assessed. If those signs are reflective of likely trends in the coming months, then the revival in industrial performance during the final year of the last century appears to be a short-lived rather than a more long-run tendency. There are a number of factors which could have contributed to such a tendency. First, the unusually good monsoon in1998-99, which raised agricultural production substantially.  This would have with a lag contributed to a revival of industrial demand. With agricultural agricultural growth in 1999-2000 being lower, this effect would have since been considerably diluted. Second, the lagged effects of the windfall gains in the form of arrears payments associated with the implementation of the Fifth Pay Commission’s recommendations, which are known to have spurred demands for consumer durables. This effect too would have by now lost much of its potency. Finally, the easy liquidity and lower interest rate regime put in place by the central bank, which could have contributed to a credit-fuelled revival in demand. This last element is the only one which could continue to play a role this financial year as well.
 
It needs to be noted that in explaining the recovery, the emphasis here is on a revival of domestic demand. This is because exports do not appear to have played any role in raising industrial production. Though India’s merchandise exports registered a modest recovery in 1999-2000, with growth of the dollar value of exports placed at 11.6 per cent as compared with a decline of 5.16 per cent in 1998-99, this growth could not have provided any significant stimulus to industrial production. Not only is the double-digit figure for 1999-2000 arrived at from the lower base resulting from the contraction in the previous year, but export growth during the previous industrial "boom" during the mid-1990s averaged a much higher 20 per cent per annum.
 
Thus "once-for-all" factors like a sharp improvement in agricultural performance and windfall income gains appear to explain the 1999-2000 recovery. Unless a credit-fuelled boom in demand or an unlikely boost to exports change matters substantially, the revival is unlikely to translate itself into a sustained industrial boom. And early evidence from the automobile industry suggest s that this is not happening, providing the basis for expectations of a return to relatively low growth in industry in the coming months.
 
This is not merely disconcerting in itself, but even more so because of the implications it has for the impact of liberalisation on industrial growth. As mentioned earlier, besides 1999-2000, the only years in the post-reform period when industrial growth touched satisfactory levels were 1994-95 and 1995-96. That "mini-boom" too was the result of once-for-all influences, in particular the release of the pent-up demand for a host of import-intensive goods, which in the wake of liberalisation could be serviced through domestic assembly or production using imported inputs and components. Once that demand had been satisfied, further growth had to be based on an expansion of the domestic market or a surge in exports. With neither being realised, industry entered a phase of slow growth. The evidence discussed above suggests that matters have not changed much since then. The improvement in industrial production in 1999-2000 is not indicative of Indian industry having traversed onto a higher growth trajectory, but the result of similar once-for-all stimuli whose effects are already waning. In the event, the promise held out by the advocates of reform that liberalisation would put Indian industry on a new growth path still remains unrealised.