First, we had a not-so-surprising news that Indian economy is going to report 6.9% growth for the current fiscal year 2011-12. The lowest since FY09. However, after that, tepid growth data for the industrial production definitely would have shocked many people. As per the government data, output from India's factories, mines and utilities increased by just 1.8% in the month of December as compared to the same period last year. This was way below the numbers that came out in the surveys conducted by Reuters and Bloomberg (3.4% and 2.6% respectively). Even, HSBC manufacturing purchasing managers' index (PMI), an important indicator to judge the performance of manufacturing sector was 54.2 in December, hinting at a good growth for the month.
The December figure as compared to the November's growth of 5.95% is definitely disappointing. However, it should be noted that November's numbers were probably a bit up on account of lower base. Together with, the sub-7% growth projection for FY12, this December figure at least indicates that there are still signs of a slowdown.
The reasons for the same are not very hard to find. Interest rates are still at high levels. Inflation is still to come within the comfort levels of the Reserve Bank of India (RBI). Policy action by the government has been in limbo for quite some time. And, the weak economic scenario in the US and Europe continues to add to the woes.
What is more, many economists believe that that the growth situation would remain subdued in the coming months as well, especially in the light of a high base effect in January to March. Considering the widening fiscal deficit gap, the government is left with little headroom to propel growth.
Despite this, there are several good indications for the Indian economy going forward. Recently, RBI cut the cash reserve ratio (CRR) by 0.5% and eased out some liquidity in the system. The apex bank may lower the rate in the near future. Foreign investment has begun to come back to India. However, the Indian government needs to get its act together. It must take steps towards cutting down fiscal deficit. That would help the RBI ease out its monetary stance which in turn would help growth momentum.
Would the month of March witness some action to bring the growth momentum back on track when RBI's monetary policy and the Union Budget come out? Only time will tell.