A mixed picture

C. R. L. Narasimhan
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conomic data released over the past two weeks send out confusing signals. The IIP data (index of industrial production) for March 2013, released on May 10, was on the face of it, positive. It showed industrial production growing by 2.5 per cent on a year-on-year basis.

A year before, in March, 2012, it had contracted by 2.8 per cent. Even more encouragingly, the March IIP data has been in continuation of a positive trend that began in January. (In December, 2012, it had contracted by 0.5 per cent)

Special comfort

Those who viewed the above positively drew special comfort from the fact that the manufacturing sector, which accounts for over 75 per cent of the IIP, grew by 3.2 per cent in March as compared to a decline of 3.6 per cent in the same month last year. However, while government spokespersons spotted a consistent revival in industrial activity, the whole year’s IIP data (2012-13), when analysed, hardly gives room for comfort.

For, one, manufacturing growth for the year at 1.2 per cent is less than half of what was achieved during the previous year, 2011-12. Two, even more strikingly, overall industrial growth last year has been pegged at just one per cent, compared to a 2.9 per cent growth in the previous fiscal year.

It is based on such analyses over the past one year rather than on merely the first three months, that the rating agency Crisil says that Indian industry’s performance in 2012-13 is its worst showing in 20 years.

According to Crisil, the performance is reminiscent of the crisis year 1991-92 when industrial output grew by just 0.6 per cent and manufacturing output contracted by 0.8 per cent. Growth of manufacturing output has remained well below its trend growth rate and the gap is widening. Policy logjams bedevil the mining industry on which the power sector is crucially dependent upon.

Trade deficit

Trade deficit widens but there is more to it than gold and oil. A statement like that might mislead because coinciding with the release of the April trade figures by the Commerce Ministry was the festive season of Akshaya Tritiya, considered to be an auspicious time for gold purchases. Across the country, there have been reports of households buying gold with leading shops claiming this year to be even better than last year.

Against that backdrop, it is easy to see why the spurt in gold demand should assume such monstrous proportions.

The trade figures might also support that view. After declining for three consecutive months, the trade deficit rose sharply in April with imports rising by 11 per cent in April, the fastest pace in 12 months. In contrast, exports, after rising for four continuous months, decelerated to just 1.7 per cent in April.

According to Crisil, the seasonally adjusted trade deficit was only slightly higher in April compared to March and below the monthly trade deficit recorded between October 2012 and February 2013.

Yet, the big worry over the widening current account deficit on the back of the trade deficit remains. Exports need to revive to make a dent on the trade deficit.

The government has very few options either to moderate gold imports or boost exports, both within a short time span. Sluggish imports of non-oil and non-gold imports corroborate other evidence of a general economic slowdown.

Sharp fall in inflation

The big news concerns inflation. WPI inflation in April went down below the 5 per cent-mark, the first time in three-and-a-half years. In March, it was 5.96 per cent, in April it fell steeply to 4.89 per cent.

There has been a substantial decline in prices of food and manufactured articles.

Significantly, core inflation, non-food, non-fuel manufactured inflation decelerated for the sixth consecutive month to 2.7 per cent in April.

Retail price inflation, however, remains high at 9.39 per cent although it has come down from the psychologically important 10 per cent mark.

These points, of course, matter for the monetary policy but already there is a large expectation of an interest rate cut by the Reserve Bank of India (RBI).

All in all, a fortnight of important economic data, which are, however, subject to a varying interpretations.



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