Reserve Banks surprise move

endorses the growth story

C. R. L. Narasimhan

no doubt at all that the senti- by much than the minus 0.4
ment is improving. But do the per cent in the April -Novemn balance, interpretation available economic numbers ber period of last year).
of the latest economic justify the optimism?
In the context of the slowdata points to a recovery, aldown, a 3.8 per cent jump is
beit a muted one. The Reserve Monthly data
seen to be impressive, repreAmong the data, which ev- senting as it does a fiveBank of India s unexpected
rate cut on Thursday last ery one scrutinises, are the month high. The index was
just two weeks before a two monthly economic indi- down by 1.3 per cent in Noscheduled policy review is cators the Index of Indus- vember, 2013. In the first
the most ringing endorse- trial Production (IIP) and the eight months of the current
ment of the recovery till date. inflation numbers. Industrial financial year, the IIP was up
With the budget barely a output figures for November by 2.2 per cent, as against 0.1
month away, the state of the and retail inflation data for per cent during the correeconomy obviously is a key December were released on sponding period in the previfactor. Finance Minister January 12. WPI inflation ous financial year. Without
Arun Jaitley claimed that the numbers came two days later. the lift provided by the Noeconomy is stable in a macrovember data, the output figeconomic sense and that ecoures would have remained
nomic fundamentals are
bleak. The next and more imimproving. The World Bank
portant issue is whether the
Industrial output, as mea- improvement will be suschief, on a visit to India, said
that the Indian economy sured by the IIP, was up 3.8 tained. A look at individual
would clock more than six per per cent in November. Retail sub-sectors constituting the
cent growth next year. The inflation, as measured by the IIP will help. Manufacturing
IMF and the OECD are also Consumer Price Index (CPI), will remain in focus not just
sanguine about Indias pro- rose to 5 per cent in Decem- because of its large weight in
spects in 2015. Within the ber, inching up from 4.38 per the index, but also because
BRICS group of nations, Chi- cent recorded in November. many of the policy initiatives
nas economy is cooling down Inflation, as measured by the aimed at reviving the econowhile Brazil and Russia are Wholesale Price Index, rose my target this sub-sector. The
over dependent on commod- marginally to 0.1 per cent in clamour for an interest rate
ity prices. The sensational fall December from zero per cent cut at the next RBI credit polin petroleum prices has in November.
icy review (in early February)
These data need to be is based on the assumption
caught major oil producers
such as Russia unawares. placed in their proper con- that lower interest rates are
Falling oil prices have text. The rise in industrial necessary for industrial redragged down other com- output in November is by it- vival. Mining and electricity
modity prices. With all major self not particularly notewor- sub-sectors grew by 3.4 per
economies, except the U.S. thy. However, it had cent and 10 per cent, respecand to some extent the U.K., contracted by 4.2 per cent in tively. Quite clearly these two
slowing down, India is ex- October, with the manufac- are benefiting from the policy
turing sub-sector, accounting initiatives although much
pected to be an outlier.
Within India, official fore- for a high 75 per cent of the more needs to be done.
casts place economic growth IIP, contracting by an alarmWhile there was growth in
at around 5.5 per cent during ing 7.6 per cent.
production of basic goods (7
Manufacturing has reco- per cent), capital goods (6.5
the current year by no
means a spectacular figure vered somewhat in Novem- per cent) and intermediate
but significant because it sug- ber growing by 3 per cent. goods (4.3 per cent), the outgests a break-out from the (the eight-month figure for put of consumer goods
sub-5 per cent growth rate of manufacturing a growth of shrank by 2.2 per cent mainly

FINANCIAL SCENE

tion in consumer durables

(14.5 per cent). Apparently,
even festival sales during the
Diwali season have not boosted the output of consumer
durables. Given the seasonal
nature of sales, a recovery in
this segment appears to be far
off. On the positive side, the
economy has been growing
consistently even if the rate of
growth has not been particularly strong. Consistency reinforces the conviction that
the upturn is for real. Altogether, the IIP data and the
inflation numbers have given
rise to optimism.

RBIs unexpected move

Attention inevitably turned to the RBI. Will there be a
rate cut signal soon? The RBI
has been sticking to an 8 per
cent repo rate despite strong
pressures from industry and
the government. The central
bank had made it clear that a
further cut was possible only
if it was convinced that inflation stabilised at the current
low
levels.
The
government was expected to
do its bit to rein in the fiscal
deficit.
On Thursday last, when
large parts of India were having a festival holiday, the RBI
brought down the repo rate
by 0.25 percentage point to
7.75 per cent. In recent times,
this has been the first important monetary action that has
taken place outside the
scheduled policy reviews and
shows RBIs faith in the ongoing fiscal measures to rein in
deficits.
It is now over to the Finance Minister and the
Union budget for more