The latest data on industrial production only seems to confirm what has been known all along --- that the organised section of the Indian economy measured by GDP numbers is sliding almost month on month. Policymakers have to keep rushing back to their calculators, iPhones or drawing boards to recalibrate growth.

Economic indices are unrelenting in their dark presages. In December last, as the latest evidence from CSO shows industrial output contracted 0.6 per cent after November’s shrink of 0.8 per cent.

Such data fly in the face of the Finance’s Minister optimism of a recovery around the corner; clearly that corner is far away.

While economists cited by media seem to feel pessimistic about industrial output recovery in the context of weak consumption demand and investment, there is some evidence of contrarian trends and sentiments.

BUCKING THE TREND

In an interview with this paper ( Business Line , February 14), Anil Kothari, CEO of Edelweiss Housing Finance Limited, turned the current scenario of gloom on its head, unwittingly. His view of a housing sector booming on account of rising incomes and high property prices, occasioned by rising construction costs and inflation, offers a double-edged view of the economy.

On the one hand, we get a scenario of growth; property prices are high, demand is high, partly because incomes are rising and mortgages are rising. Kothari was not willing to bet on those prices coming down, saying “it looks unlikely.” According to the data provided by Kothari, the ratio of mortgages to GDP has been steadily rising, uninterruptedly, since 2002. That year it was just 2.5 per cent; now mortgages constitute 7.5 per cent of India’s Gross Domestic Product. Small wonder housing finance companies unlike banks are not complaining. According to Emkay Housing Finance Ltd that put out an aggressively optimistic report titled “ India: Housing Finance: Undeterred by Rough Seas”, the ratio of mortgages to GDP is still low but it expects the mortgage/GDP ratio to “inch towards 13 per cent end 2015.”

The confidence is unstoppable; Emkay says there is vast room for growth and that interest rates and property prices “albeit a detriment, have had minimal impact on growth.”

When the Emkay report ( http://emkayglobal.com/downloads/researchreports/ ) was brought out last year, a shroud of gloom had already set upon the main drivers of the organised economy who were pleading for interest rate cuts and some sort of “reforms” that would get their spirits up. Clearly, housing finance companies were braving “rough seas” admirably.

That robustness is evident in Kothari of Edelweiss, too. The non-banking housing finance company is planning an aggressive expansion into 35 urban centres, against 13 two years ago, bucking the trend in the industrial sector.

The housing sector is growing if, as Kothari says, the mortgage/GDP ratio is taken as proxy of the sector’s health. In mortgage-disbursal terms, too, this is clear: in 2002, Rs.22,000 crore were disbursed. By March 2013 Mr. Kothari said it will be Rs.2.2 lakh crore; last year it was Rs.1.70 lakh crore. Slowdown, did someone say?

So if the housing sector is singing in the shower, why are the rest sobbing at the sink? One would have thought that with such a healthy expansion, the effects on the rest would have been fairly salutary and evident. Brisk housing demand is exactly the kind of kick-start to the American recession that the Obama administration dreams about.

MERE PRICE RISE

Kothari inadvertently provides some answers. The growth in disbursals, he claims, reflects an increase in the prices of property. “Value of houses is contributing more to rise in disbursements than the number of units.”

So, the growth in the ratio of mortgages to GDP is not occasioned by an increase in the stock of housing, but by the rise in the value of properties. That is perhaps why the growth of the sector as measured by that ratio is purely an endogenous affair, without those attributes of influence that would have turned it into a catalyst of overall growth.

What we have here is an asset price growth that is inherently speculative. That is why the rest of the economy will still feel that pall of gloom.

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