With the order books of most capital goods firms (except for L&T) faring badly, with basic goods growing at under 40% that in the April-September period last year and bank credit growing at just 2.2% in the April-September period (on a yoy basis, it grew around 16%), and exports contracting for the sixth month in a row, itís obvious the economy is in trouble. But has the IIP contracted 0.4% in September the way the index shows, more so when the PMI has started stabilising? Apart from the obvious contraction in machinery, the real killer is the contraction in consumer goods, by 0.3% in September. While thereís little doubt consumer demand has been hit by rising inflation and a slowing economy, inflation alone would give it some buoyancy. Look for the culprit and you see itís tobacco products where production is down a fourth in Septemberóthe gutka bans in various states may have a role to play, but the larger fall seems more of a base effect since September 2011 saw a huge surge in production. But while itís true the IIP is exaggerating the fallóthe infrastructure index of the IIP has a weight of around 40% and grew 5% in Septemberóthere is little doubt there are structural problems that need fixing, ranging from environmental issues to shortfalls in coal production and even bankrupts SEBs.
The biggest area where these structural problems show up in the various datasets released Monday relate to rural consumer prices where the index rose to 10% in Octoberó8.2% if you exclude both food and fuels. While thereís a larger issue here of a yearís lag in core inflation falling after a fall in GDP growth (http://goo.gl/WrLD7), there is enough evidence to show inflation is influenced by both rising MSPs as well as higher spend on programmes like MGNREGAóthat means while RBI needs to do its thing, the greater burden lies on the central and state governments. In the case of trade, the contraction in exports was to be expected, what comes as a surprise is the 32% hike in oil imports, though this appears more