"We are in the midst of a slowdown," says Bibek Debroy, economist and Research Professor at Centre for Policy Research. Debroy's cautious growth outlook has been echoed by a cross-section of groups - industry, economists, analysts and the like - for many months, even as economic ministries have been fighting shy to admit there is a slowdown.
Shweta Punj
Perhaps a statistical validation, if was needed, comes from the latest numbers of India's
factory output. Industrial production grew at a disappointing at 3.3 percent for the month of July down from 9.9 per cent in July last year.
This is the
worst Industrial output India has recorded in 21 months. Factories are manufacturing far below their capacities, Indian consumers are wary of spending money - the aftermath of eleven interest rate hikes and double-digit inflation is beginning to show.
Manufacturing sector, which constitutes over 75 per cent of the index, grew at 2.3 per cent in July; capital goods output grew at 15.2 per cent; mining grew by 2.8 percent; production of intermediate goods fell 1.1 per cent; and consumer durables grew 8.6 per cent.
If we compare these numbers to those of July last year, the picture looks rather grim: Intermediate goods, for instance, grew at 8.5 percent in July 2010. Consumer durables grew at 14.8 per cent; manufacturing grew at 10.8 per cent; capital goods grew at 40.3 per cent; and mining grew at 8.7 per cent last July. In fact, factory output grew at 8.8 per cent in June this year.
Sudipto Mundle, a member of the Monetary Policy Technical Advisory Committee of Reserve Bank of India, says, "The variations from month to month have to be treated with caution. Too much should not be read into them. With the contractionary policy of the Reserve Bank, a slowdown was expected. It is collateral effect of RBI policy."
The RBI and the UPA government have been fighting a losing battle against inflation - which has intermittently shown signs of cooling only to strike back with a vengeance. Wholesale-price inflation accelerated to 9.44 per cent in June. Inflation remained in double digits for the most part of 2010; and in an effort to tame inflation - RBI increased interest rates eleven times in one year.
Even as policy makers have expressed concern over "not acceptable" inflation levels, they do not expect inflation to come down to 5-6 per cent this year -- a target set for March, 2011.
Economy watchers are sceptical of the 8.1 per cent growth estimates of the government. There is an overarching view that India will settle at a 7.5 per cent growth rate - though there are no official estimates as yet. Indian equity markets dropped 365.23 points on September 12, closing at 16,501.74 on disappointing IIP data, sliding rupee and European crisis.
The question is, will the RBI increase interest rates again in its mid-quarter policy review on September 16?
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