For a government facing criticism for not doing enough for the economy, some indicators have brought cheer. Until now, nearly all crucial data on the macroeconomy seemed to portray the UPA-II government’s recent economic performance in a negative light. Not long ago, Prime Minister Manmohan Singh more or less admitted his government’s failure to get a grip on inflation. High prices were a major campaign issue in the recent State elections and are certain to figure prominently in the coming national elections as well. Failure to push up GDP growth to levels seen just a few years ago is another negative factor. In the first half of the current year (2013-14), the economy grew by barely 4.6 per cent and it may not be able to match the CSO’s estimate of 5 per cent for last year, the lowest in a decade.
The overall macroeconomic scene has not been encouraging for the ruling coalition, but bits of good news that have started trickling in can partially lift the gloom. Arguably, the most satisfying news in the recent period has been the sharp fall in inflation, both headline and retail, in December. The former moderated significantly to a five-month low of 6.16 per cent from a 14-month high of 7.52 per cent in November. Retail inflation too fell from 11.6 to 9.87 per cent in the same period. A sharp fall in the prices of vegetables, especially onions, was responsible for the moderation. Inflation affects the common man and the vulnerable much more in the immediate term than any other variable including growth rates. However, while decline in inflation is welcome, it must be noted that the moderation has not been across all categories. Even within the food basket, prices of dairy products and eggs remain stubbornly high. For the RBI, which will review the credit policy at the end of this month, the decline in inflation would be welcome but not good enough to cut rates. Core inflation, a widely watched measure that excludes food and fuel prices. has been climbing. The other important piece of good news has to do with a possible revision by the CSO of its growth estimates of some previous years. The estimate for 2011-12 will be revised upwards from 6.2 per cent to between 7 and 7.75 per cent and for last year from 5 per cent to 5.5 per cent and above. Revisions in data are not uncommon, but its magnitude this time certainly is. The CSO should back its revisions with a solid explanation to uphold the integrity of official statistics. Whether the improvement in economic indicators will be sustained over the next few months is a moot question.