oppn parties The Economy is Not Growing Sufficiently

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  • Supreme Court approves two-child norm for government jobs in Rajasthan
  • DMK issues rocket ad with Chinese flag, PM Modi slams party
  • BJP alleges that Congress workers raised slogans like 'Pakistan jindabad' outside Karnataka assembly after the results for the RS polls were declared. CM Siddaramaiah promises stern action if claim found true
  • Calcutta HC says any agency can arrest absconding Sandeshkhali TMC strongman Sk Shahjahan
  • Himachal Pradesh Speaker suspends 15 BJP MLAs for unruly behaviour
  • Joint teams of Navy, NCB and Gujarat ATS seized a boat with 3200kgs of narcotics in high seas off Gujarat coast. Five crew members were also arrested
  • Centre tells Supreme Court that economic disaster will follow if states are allowed to tax mineral land
  • NCLT asks Byju's to keep rights issue funds in a different account
  • Sunil Bharti Mittal of Bharti Enterprises was conferred the honorary Knighthood by Britain's King Charles III for services rendered in furthering business relations between the UK & India
  • RIL to merge Viacom18 with Disney's Star in $8.5bn deal, Nita Ambani to lead the board of merged entity
  • Vodafone Idea shares fall nearly 15% over fears of huge fund raising
  • Stock markets crash on Wednesday: Sensex loses 790 points to 72304 and Nifty 247 points to 21951
  • BCCI gets tough, removes Shreyas Iyer and Ishan Kishan from central contracts for missing Ranji Trophy. In a first, it starts fast bowling contracts to reward emerging players like Akash Deep and four others
  • Tennis: Sumit Nagal loses in first round of Dubai Duty Free tournament
  • WPL: UP Warriorz beat Mumbai Indians by 7 wickets
Bengal police arrests TMC leader Sk Shahjahan, the prime accused in the Sandeshkhali disturbances
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The Economy is Not Growing Sufficiently

By Sunil Garodia
First publised on 2016-09-13 08:33:07

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
Conflicting Data
The latest set of data released by the Central Statistics Office and data from other sources indicates that while inflation is lower and tax collections are robust, industrial output is at its 8-month low and gross fixed capital formation has contracted again. These figures show that the economy is not recovering.

The data shows that:
* Consumer Price Index based inflation is at 5.05 percent, lowest since March.
* Index of Industrial Production (IIP) contracted 2.4 percent year-on-year. Manufacturing was the real culprit, going down by 3.4 percent. The alarming thing was that this reversed the trend in June when the IIP achieved an eight month high of 1.9 percent (revised).
* Tax collection at Rs 5.25 lakh crore, in first five months of this fiscal, was 23 percent higher than in the same period last year. The red flag was lower corporation tax collection, which fell by 1.9 percent.
* Gross fixed capital formation contracted again, the second time in two consecutive quarters, which is an alarming signal that shows no fresh investments.

Where is the expected growth?
The economy is not growing. There will be a chorus of demand for rate cuts by the RBI to generate investment. But the RBI may prefer to wait till December. This is due to several factors. The first is the good to very good monsoon that is expected to ease farm prices leading to still lower inflation. Anything below 4.5 percent will be a huge cushion. The second is the expected upsurge in demand for goods in the ensuing festival season, backed by the rise in salaries (as a result of 7th Pay Commission award) and payment of bonus in both government and private sectors. Pumping in more money in the economy at this juncture could be counter-productive and may lead to inflationary pressures.

Rate cut might not happen before December
The RBI might prefer to wait till December to see what surging demand and lower farm prices does to inflation and the IIP before taking a call on lowering interest rates. To many, that would be too late if India is to achieve an 8 percent growth this fiscal, but given the hawkish stance adopted by the RBI in recent times, that is the most likely scenario.