For the last one month or so, many newspapers and magazines are carrying out reports predicting a crash landing of Indian industry and along with it the whole economy. One may recall that only few weeks earlier India was still hailed as a growing economy with strong fundamentals and was listed among the fastest growing economies after China. Is it that the declining trend of GDP at 6.9% in Q2, the fall in industrial output at more than 5% in October?11 and the latest salvo at a very high net debt-Ebitda ratio of the top guns in the construction sector has prompted this change in perception about the country?s growth perspective?
The good news is the continuous drop in food prices which must brighten up the overall despondent scenario. The latest Purchasing Managers Index (PMI) for manufacturing reveals a 6.3% improvement over last month?s level.
Market sentiments are highly influenced by the perceived risks of very recent origin and thus a rise in index signals a better climate in the coming period.
Among other economic indicators, the growth of FDI in April-October?11 period by 62% over the corresponding period of last year indicate positive aspects. Although no firm correlation is yet available on the impact of raising the interest rate in bringing down current inflation in the country, there is every likelihood of a fall in interest rates by RBI in view of lowering of inflation rate. This would go a long way to enhance investment that is lagging in infrastructure and other
sectors.
Sustaining all these positives appears to be a herculean task. But that is the challenge before the government. In the post-election frenzy, it would be incumbent on the government to come out with a host of reform measures to rejuvenate the sagging morale of the industrialists, investors, financial institutions and all others involved in the development process.
Investible resources for productive purposes and mostly for the development of social and commodity sectors must be made available by pruning down non-developmental expenditures and let this not remain a mere wish list.
For steel industry, the land acquisition and Mining and Mineral Development Acts would pave the way for flow of investment in steel and mining. Arcelor Mittal has sought a renewal of the agreement with Orrisa government. The request is largely guided by the prolonged recession in Europe and other advanced countries and the brightened growth prospects in India.
Increase in export tax on iron ore to 30% is another indication of the government?s faith in the growth of domestic demand for steel to cater to the rising demand for the product. Indigenous steel producers basking in the backdrop of a 30% decline in coking coal price and a devalued exchange rate have been able to raise prices in January after a gap of 3 months . It has brightened the prospect of their ability to continue with the expansion and modernisation projects of steel plants. A little pause in the journey, therefore, is not be construed as the termination of the race.
– The author is DG, Institute of Steel Growth and Development. The views expressed are personal