Hope for revival

On the face of it, the Index of Industrial Production (IIP) numbers for June and the Consumer price Index (CPI) figures for July, which were released this week, may cause some concern.

They are indicators respectively of industrial growth and inflation which are the two most important areas to be addressed in the economy now. The concern may be because some expectations which were built up in recent past have not been fully met. It was expected that the IIP would be higher than the previous month’s 4.7 per cent but it actually fell to 3.4 per cent. Similarly, inflation rose to 7.96 per cent, almost touching the psychological 8 per cent, from the previous month’s multi-month low of 7.46 per cent. There was hope that a declining trend in inflation had started but it was not seen in the latest number.  But on a closer look, both the indices do not paint a bad picture.  There may even be some scope for a better outlook on industrial growth, if the performance of some key sectors represented in the IIP is a guide. The moderate growth comes after many months of negative growth till the beginning of the financial year. Higher production in sectors like power, which grew by a remarkable 15 per cent, cement and metals is a good sign. Capital goods did very well. Consumer spending also increased and car and two-wheeler sales showed improvement. Investment, however, is yet to pick up strength. In the recent past, it has been seen that while some sectors did well in one month, other sectors performed in the next.  A sustained recovery calls for uniform growth in all sectors for a period of time. Therefore, the sectors which lag will need attention in terms of policies and action. First quarter results of companies might also support the hope for a revival in the near future. 

In the case of inflation also, the figures have to be seen in the context of the delay in the onset of the monsoon which influenced price movements in the period covered by the index. Since then, the rain deficit has narrowed down and there is forecast of near-normal rainfall in the remaining period of the monsoon. Farming activity may not be affected much and the prices of many commodities in the food basket which have a bearing on inflation may have stabilised. So, it is unlikely that the CPI will worsen.

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