October 13, 2012 2:22:52 am
There has been zero growth in the manufacturing sector from April to August this year. Only if one adds the production of electricity to it does the growth rate become barely positive,at 0.4 per cent. The general index of industrial production is worse in August than in July. So as the first set of numbers for the traditionally busy season of the Indian economy began rolling out on Friday,the question to ask was: is the worst over,or there is more pain ahead? Against the clear and present negative signals,the positives are still a matter of conjecture. To assess the prospects for the economy,one must widen the focus beyond just the index of industrial production.
Broadly,there are four growth drivers for the Indian economy information technology,automobiles,agriculture and government expenditure. Within the IT sector,Infosys delivered its second quarter results on Friday,retaining its revenue guidance for its key earnings area,the US market. But that failed to lift the mood of markets and analysts,because the company has revealed that it is impacted by the pressure of declining revenue margins as costs have risen (operating margins declined). This mirrors the pressures faced by the rest of the corporate sector. The intensity of this pressure will become evident soon,as other major IT results pour in next week. For the automobile sector,industry body Society of Indian Automobile Manufacturers has slashed the growth rate for this fiscal to 5-7 per cent. This is,however,still an improvement on the 3.62 per cent registered in the April to August period. Government expenditure,a major driver of consumption growth in the economy will have to actually reduce in this fiscal,according to the Kelkar committee report. So that leaves the agriculture sector,which is expected to clock a 3 per cent rate of growth this year,as the only probable growth area for the economy.
This basket of positives looks meagre right now. And yet,it is a definite improvement on the numbers presented last month. Since the price pressures are easing retail inflation has slipped to 9.7 per cent,a four-month low the painful combination of a slowing growth rate and rising inflation seems to be getting better. In such an environment,the year-on-year rise in industrial activity,at 2.7 per cent in the first four months,is certainly a nice number to begin the festival season with.
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