If there is any positive to be taken from the latest Index of Industrial Production (IIP) print of December – which showed factory output dropping to a negative of 0.6 percent as opposed to expectations of a 1.1 percent increase which a Reuters poll put out—it is that the task for the policymakers is clear and unambiguous.
Whatever the details of the figures, the fact staring policymakers in the face is that the economy is seriously slowing down, growth is sputtering and there’s an immediate need for a series of policy prescriptions to ensure this is not the beginning of a downward spiral.
The Union Budget 2013 is just a few days away, and the latest IIP figures are yet another wake-up call for the policymakers to push through a set of measures which would address the growing problem of the twin deficits and flagging investment activity.
While most in corporate India and analysts Firstpost spoke to seem to be confident that Finance Minister Palaniappan Chidambaram will attempt to do whatever is possible under the circumstances to bring back the growth momentum by way of the Budget and otherwise, it will need a cohesive effort from every aspect of policy to ensure cohesive policy action.
The FM, who is being widely lauded by corporate leaders for his efforts since he took charge of the ministry late last year, has been quoted recently as saying that he is confident India’s GDP will end up around 5.5 percent by the end of the current fiscal, despite the Central Statistical Organisation’s (CSO) advance estimates pegging it at 5 percent. The minister is of the view that there has been a recent upturn which will account for the final figure being higher than the CSO estimates. The December IIP figure seems to add a fresh dimension to this debate.
Consider the figures: The manufacturing sector output declined 0.7 percent, capital goods output 0.9 percent and mining sector 0.4 percent, while the electricity sector grew 5.2 percent. Consumer non-durables output declined 1.4 percent and consumer durables 8.2 percent. Intermediate goods grew a marginal 0.1 percent. All in all, the scenario is worrying enough.
While corporate leaders like Marico’s Harsh Mariwala and HDFC’s Keki Mistry are confident that the FM will pull out all stops this time round to send out positive signals for the revival of the growth momentum, the Reserve Bank of India (RBI) will also need to be in-step with Chidambaram on this. While Subbarao has his own compulsions on the inflation front – he has once again said inflation at 7 percent is still too high – RBI did lower the repo rate in its January policy review by 25 basis points to try and do its bit to bolster growth and investment. However, given the current situation, more will perhaps need to be done. HDFC’s Mistry, in fact, reckons RBI will effect another rate cut of 25 basis points after the Budget is announced, analyzing the government’s moves on fiscal consolidation.
With the global signals continuing to be weak, the rating agencies keeping a close watch and the slowdown showing little signs of abating, Chidambaram and Subbarao will have to come up with a common formula to keep growth from flagging further.
As Mariwala says, with the elections still over a year away, Chidambaram’s best opportunity to push through his growth agenda is now, with Budget 2013. There is no way he can miss this chance.