Only government policy can get the economy out of a rut

The economy grew five per cent in 2012/13, the lowest in a decade. To put India's current economic woes in perspective, consider this: only four times in the last 22 years has economic growth been lower. Twenty-two years ago in 1991, India had to approach the International Monetary Fund for help in the wake of a balance of payments crisis.

While the overall growth rate was in line with market expectations, the disaggregated data shows that recovery is unlikely to occur soon. Hoping that the Reserve Bank of India may help get the economy going through monetary easing - in the form of interest rate cuts and liquidity infusion - may be futile. The data suggests as much.

The quarterly data for the last two financial years shows that inputs that provide the foundation for economic growth have seen a weak trend. Mining, for instance, has seen in contraction in five of the last eight quarters, including the last two consecutive ones. Electricity, gas and water supply growth in the fourth quarter of 2012/13 was 2.8 per cent, the lowest in the last eight quarters.

Fixed investment, one of the most keenly tracked indicators, grew 3.43 per cent in the fourth quarter of 2012/13. For the entire financial year, it grew 1.72 per cent.

The current financial year may see a marginal pick-up in growth rate, helped by the fact that last year's growth rate was slow. RBI has forecast a growth of 5.7 per cent in the current year.

What is increasingly evident is that the key determinants of a big turnaround are going to be the Union and state governments. Sensible policies and timely clearances will do more to improve sentiments and attract investment than looking towards RBI for a miracle.