Good indications, but insufficient!

Mon, 16 Jan Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

2011 was a bad year for economies all over the world. Indian economy was no exception. Almost nothing went right for it over the past one year. Stubborn inflation, higher interest rates, rupee depreciation, sluggish foreign investment, slowing economic growth, high oil prices, debt crisis in the developed economy and failing Euro zone were the highlights for the year 2011. Many economic experts have already started talking about growth rates below 7% for the current fiscal 2011-12.

However, recently released data on an important economic indicator pleasantly surprised most of us. We are referring to India's industrial output which rose by 5.9% YoY in the month of November as compared to a contraction of 5.1% in the month before that. As per a leading industrial index, industrial output data is expected to be robust for the month of December 2011 as well. To add to this food prices have been easing in recent times, giving an early sign that inflation has finally started to ease off. Reserve Bank Of India (RBI) has already paused rate hikes and may even consider lowering rates going forward.

No doubt, these are good signs for the health of the Indian economy. But the moot question remains. Has the Indian economy hit the bottom? Would the improvement in the macro-economic factors continue going forward?

There are some factors that we need to look at before answering these questions. The first is that the RBI has just paused on its monetary tightening. However it is still uncertain as to when it would start easing the interest rates. As per the November 2011 data, inflation was still above 9% levels. Add to this, oil prices have still not cooled off. Rupee is still depreciating vis-a-vis the US dollar. As a result, import bills would continue to remain high. On top of all this, the uncertainty in the global economic scenario would continue to hurt exports in the near term.

And there's more. In all possibilities, India is going to fail on its fiscal deficit target by a huge margin. 2014 is the election year. Considering the political drama in recent times, any chances of policy reforms are very thin.

All in all, though the recent improvement in Index of Industrial Production (IIP) is definitely a welcome sigh, but it seems we are still far away from the high growth numbers that we aim to achieve.