Revealing growth numbers

A cursory reading of random numbers leads one to reflect deeply on the Indian economy and arrive at some uncomfortable thoughts.

Where is it heading? Is it moving upward? Or, is it sliding? At 7.8 per cent for the last quarter of the last financial year, the GDP (gross domestic product) growth number is healthy, no doubt. It is, however, down from 9.4 per cent in the same three-month period of the previous fiscal.

The picture thus far in the current financial year is anything but hazy. The recent assertion by the Reserve Bank of India (RBI) Governor D. Subbarao that the policy prescriptions of the apex bank proved ‘ineffective' because of the ‘bewildering quality of data' has only helped to confound the confusion. While everybody is willing to go the extra yard to spread a sense of optimism about the Indian economy, none has any clarity on its future course. Just consider these.

* The June inflation measured by the wholesale price index is up 9.44 per cent from 9.06 per cent in April.

* The Index of Industrial Production (IIP) in May is up just by 5.6 per cent as against the consensus estimate of 8.5 per cent. The IIP has been on a downhill course since December 2001 except in March 2011.

* The growth number in manufacturing has dropped since December 2010 except in March 2011.

Automobile sales

If these macro numbers sketch out the looming threat, intermittent reports from across assorted sectors have escalated the concern. Automobile and cement — key drivers of the economy — are through tough times. Cement demand has been flat due mainly to a slowdown in infrastructure spending by the government.

The automobile sector is witnessing a deceleration in sales. This is more pronounced in the car industry. In the passenger car segment, the combined sales of top three makers — Maruti Suzuki, Hyundai and Tata Motors — have dropped by 4.3 per cent in June. From a 30 plus growth rate not long ago, the passenger car industry has skid to this level.

The commercial vehicle space too is experiencing slowdown.

Housing sector

The paradox in the housing sector (which is witnessing a slowdown in demand without a corresponding drop in prices) is attributed more to supply constraints and especially to the evaporation of land in urban pockets. The rising interest rate — triggered by a series of frequent interventionist initiatives by the apex bank — is primarily blamed for convulsions happening in these sectors.

These have led to some avoidable as well as unavoidable practices. If teaser loans and interest subventions have posed serious worries especially in the wake of unsavory happenings elsewhere in the globe to the managers and regulators of the Indian economy alike, the competitive price cutting in sectors like telecom and passenger cars has put the profitability of many a company in perils. This could have serious negative long-term consequences at the micro as well as macro levels.

In a stunning move, car maker Honda slashed the price of its premium hatch-back Jazz by Rs.1.76 lakh in what is touted as a ‘limited offer' to liquidate its piled-up inventory. This is, perhaps, the biggest price cut offered in India for any product by any car company in many summers. This has triggered a predictable reactionary response from competitors, who have now embarked upon an ‘out-cutting' exercise. The interest subvention is also back with ferocity in a slumping sale scenario.

Given these, one is tempted to wonder if the ‘blinkered inflation focus' is proving self-defeating.

The concerns expressed by the RBI Governor on the “quality of data supplied” need to be taken seriously and addressed quickly. Ipso facto, one may not be entirely incorrect in arguing for a course correction with a redoubled focus on the supply side for an economy which has still influential unorganised pockets.


The concerns expressed by the RBI Governor on the ‘quality of data supplied' need to be taken seriously and addressed quickly.

Recommended for you