|
: To restate the obvious, IIP (index of industrial production) gives a partial view of industrial performance, a point the government has often made. That’s because IIP covers the organised sector and if the small and unorganised sector has suffered relatively more from monetary tightening and the global slowdown, that won’t show up in IIP. However, following a decline by 0.3% in October 2008 over October 2007 (originally the decline was estimated at 0.4%), there was unanimous expectation of further decline in November. Instead, there has been an increase of 2.4%, which is, of course, negligible if industrial growth aspirations are more than 10%. But does growth mean Cassandras of gloom and doom were wrong? Probably not. The positive growth performance has been driven by 31% growth in rubber, plastics, petroleum and coal. Both transport and metal products, better indicators of industrial growth and investment, have declined by almost 9%. Even more significantly, capital goods declined and basic and intermediate goods have increased by less than 2.5%. And confirming anecdotal impressions, consumer durables declined by almost 5%. Hence, despite November recording a better-than-expected performance, there are legitimate reasons for concern. At best, some temporary credit crunches may have eased, though that isn’t certain either.
Services sector growth works in tandem with industry. Agriculture is doing well, but doesn’t account for a large chunk in national accounts. Therefore, the prospects for GDP growth in 2009-10 remain bleak, with bad news likely to continue for the first half of financial year 2009-10. For this first half, growth forecasts are between 4% and 5%, depending on how optimistic one is. There has been monetary policy loosening and more is expected in the period leading up to April, with inflation under control. But monetary policy works with lagged effect and investments aren’t likely to revive (political uncertainty compounds this) until the end of 2009. Nor is the fiscal policy likely to be quantitatively significant. Therefore, the next financial year is likely to have growth between 5% and 6%. With little structural reform attempted throughout its tenure and no fiscal consolidation, there is little the UPA government can do beyond monetary loosening and spending public money already in the pipeline. And notwithstanding IIP data, Q3 corporate results for this financial year will continue to show weak results, especially in sectors like auto, real estate, cement, metals and mining. By no means is India in the middle of a technical recession. But there is bad news and counter-cyclical options are limited.
More from Edit & Column
Discuss this story on expressindia forums
|
|
 |
 |
 |
About Us | Contact Us | Advertisers | Site Map | Make us your homepage | Work for Us | RSS | Subscribe | Electronic Edition | Privacy Policy© 2009: The Indian Express Limited. All rights reserved throughout the world
