Cause for concern

While there are many predictions about the economy turning around and improving in the months ahead, some important indicators of performance are not sending out reliable green signals. Industry is the main driver of the economy, but its growth declined by 1.9 per cent in February.

It was actually at a nine-month low, and the manufacturing sector, accounting for 75 per cent of the index of industrial production (IIP), fell for the fifth consecutive month. There are other bad signals too. Exports, which were rising for some time, fell by 3 per cent in March. Imports too showed a decline.

The picture for the entire financial year was also not very bright. Exports, at $ 312 billion, fell much below expectations. Car sales, which also reflect the state of the economy, are also down. Yet another bad indicator is the poor job growth, which was the slowest in the past six quarters in all the key sectors like textiles and automobiles.

Anyone of these low figures would itself be a cause for concern. But they are interrelated and could not be seen in isolation from one another. Together they show a continuing industrial slowdown and the inability of the economy to actually show the momentum which it is thought to be gaining.

Many favourable factors, which certainly exist, are being counteracted by negative ones which too abound. The rupee depreciation helped exports to rise for a while but its strengthening, which is otherwise a sign of the economy’s strength, has hit exports. Some good signs like a better balance of payments and fiscal positions and greater capital flows have only given a temporary stability to the economy.

It should not be taken as a decisive turn for the better. It will take a lot of time for all positives to work out and it will also depend on the policies and actions of the next government.

While the fall in the IIP reflected the slowdown, there is a view that the index is not completely representative. There is some truth in this, though a different IIP would not have drastically altered the picture.

An official committee has itself suggested an annual revision of the weightage of constituents in the index, rather than once in five years. This and some other proposed changes make sense and may be considered, to make the IIP a more faithful mirror of industrial performance.

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