The economic data released this week send out mixed signals. While wholesale price inflation showed a decline at 5.19 per cent in July, consumer price inflation, which is the Reserve Bank of India’s benchmark, inched up to 7.96 per cent. Industrial growth slowed down in June compared to May. The rise in retail inflation was driven by higher food prices, mainly of vegetables and fruits. With the monsoon having made a weak start, vegetable prices shot up by 16.88 per cent in July, biting into the wallets of consumers. The present level of retail inflation is very close to the RBI’s target of 8 per cent by January 2015. The good news, though, is that it is not expected to increase further from here — an assessment based on the monsoon’s revival over the last few weeks, and the measures that the Centre has taken to combat rising food prices. The latest update from the India Meteorological Department predicts a normal monsoon in the remaining days of August and September with the possibility of a drought ruled out. Steps taken by the Centre, such as raising the minimum export prices of onions and potatoes, making hoarding a non-bailable offence, releasing foodgrains from overflowing granaries, and urging States to make changes in the APMC Act to deter middlemen, are expected to ease supply-side constraints.
Meanwhile, industrial output slid to 3.4 per cent in June from 4.7 per cent in May but it has to be seen in context. Despite the lower June figures, industrial growth in the first quarter at 3.4 per cent is a large improvement over the 1 per cent fall seen in the same period last year and the minus-0.7 per cent growth in the January-March quarter. Besides, the important segment of capital goods has rebounded in June indicating that the investment cycle has possibly begun. Only the other day, RBI Governor Raghuram Rajan had expressed worries on this count, pointing out how despite two reductions in the statutory liquidity ratio commercial lending by banks had failed to pick up, indicating a lack of appetite for investment by the corporate sector. It is possible that companies are unwilling to commit investments in fresh capacity until the existing slack is fully accounted for. The RBI’s Industrial Outlook Survey of 1,293 manufacturing companies, done in May-June 2014, shows an increase in optimism and an expectation of improvement in business conditions in the second quarter of this fiscal. Similarly, the latest Consumer Confidence Survey done by the central bank shows that there are higher expectations of an increase in employment and wages. These are all clearly positive signals, but for growth to get on the fast lane we need to await the return of the “animal spirits” in the corporate sector — which seems to be absent at this point in time.