That sinking feeling: No sign of green shoots of revival

By R Jagannathan

The Green Shoots of recovery allegedly seen some time ago by eagle-eyed scouts in the finance ministry were a mirage. Yesterday, all the numbers to emerge on the economy were negative.

The combined output of eight core sector industries - which account for 38 percent of the Index of Industrial Production (IIP) - fell 2.5 percent in February. This is a first since 2005.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI) contracted from 54.2 to 52 in March. This suggests that the slowdown has extended to March.

[caption id=“attachment_682554” align=“alignleft” width=“380”] It may also be time to relabel the term Hindu rate of growth as the secular rate of growth.[/caption]

The automobile numbers - with car sales falling more than a fifth in March 2013 despite record discounts - confirm this downtrend, with some companies reporting jaw-dropping declines. Tata Motors skidded 67 percent and Ford 42 percent in cars.

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The anecdotal evidence, if anything, confirms this.

Aviation is in the doldrums, with ticket prices being discounted heftily to drum up sales. The business of getting “bums on seats” is a bummer right now despite Kingfisher being knocked out of the market.

Real estate is in a mess - as the recent default ratings on companies such as HDIL suggest. Home buyers are simply not interested in buying at inflated prices.

The power sector is in deep red. The oil sector’s losses have not diminished one bit, despite the so-called decision to raise diesel prices. Coal output is struggling to revive.

Telecom is in deep water - as the court cases involving the sector’s giants and the industry’s inability to raise tariffs suggest.

Exports showed a small sign of revival in February, but the year is ending in negative territory.

Despite a faltering economy, the current account deficit (CAD) has hit an all-time-high of 6.7 percent in the December quarter of 2012.

The country’s is living on borrowed time and borrowed money - Rs 67,000 crore of foreign portfolio investment has flowed in this year in equity and debt. Without this, the rupee would be even lower than it is.

Business Standard thinks the external crisis is big enough for the country to approach the International Monetary Fund (IMF) for a loan even when we have more than $290 billion in foreign exchange reserves. The logic: you get better terms if you go when you are not yet in deep crisis.

The country has changed every law to suit foreign capital (GAAR, Mauritius investors), and even now the finance minister is on a roadshow to Japan to get investments. Says the BS editorial: “If…the threat of an external crisis is indeed major, and sufficiently so that it is dominating the thinking of policy makers, it is worth wondering why, instead of placating international capital, the government doesn’t just go to the one-stop window for such problems: the International Monetary Fund…”.

In early February, when the Central Statistical Office predicted GDP growth in 2012-13 at 5 percent, the government's soothsayers went into denial.

Montek Singh Ahluwalia of the Planning Commission pooh-poohed the CSO, and said: “I think it (growth projection of 5 percent) is very low. I have been told that CSO has taken data from April to November (2012-13) and they just projected it (advance estimates).”

Wonder what Ahluwalia will say now.

And C Rangarajan, Chairman of the PM’s Economic Advisory Council, claimed his “own estimate is (that) when the full year data becomes available, it (GDP growth) can be revised upward.” Reason? “There is definitely a change in the investment climate. It will pick up in the fourth quarter. When actual data come, GDP growth will be 5.5 percent or more during the current financial year.”

Well, the actual data will come shortly when the IIP is released in the next couple of days. A part of it already shows negative growth. One wonders if the 62 percent of IIP outside the core sector will grow so fast as to drown out the negative 2.5 percent growth in the core sector.

This writer believes that India’s climb out of the trough will be slow and painful. We are unlikely to see a sustained revival - barring a short election-related burst - before UPA-2 bows out.

It may also be time to relabel the term Hindu rate of growth as the secular rate of growth. The UPA inherited an economy about to hit 9-9.5 percent growth with inflation at half that rate.

It is now looking at the exact opposite situation: growth at 4-5 percent, and inflation in double-digits.