The high growth estimates for the current fiscal appear to have been beclouded by two disconcerting developments with food inflation escalating and industrial production in November sharply moderating, as the latest available estimates show.

The 20-month low industrial production in November 2010 was just 2.7 per cent higher than a year ago, decelerating sharply from November 2009 (upwardly revised) 11.3 per cent growth. A matter of concern is that manufacturing growth, which comprises well-nigh 80 per cent of the index, slowed to 2.3 per cent year-on-year in November from (an upwardly revised) 11.9 per cent in October.

In its instant assessment, Moody's Analytics argues that a base effect from comparing this year's level of production against last year's high level was always expected to result in the year-on-year result decelerating. Besides, cooling exports growth is also weighing on export-oriented manufacturing. It further reasoned that recent interest rate increases by the central bank have whittled household demand for consumer goods and business demand for capital goods, accentuating the downslide in industrial production levels.

While the November Index of Industrial Production shows a faltering trend, cumulatively, the picture is not grave as the growth from April to November 2010 is almost 10 per cent above the level of production in the corresponding period in the fiscal year, reflecting the robustness of the manufacturing sector.

Even as the apex industrial organisation like the Confederation of Indian Industry (CII) has contended that the sharp moderation in industrial numbers should make the apex bank chary about any aggressive tightening of its monetary screws in its forthcoming policy meet, analysts say that the central bank still has ample wriggle-room to absorb further interest rate hikes in moderation, given the resilient Indian economy's overall growth in terms of gross domestic product (GDP) and the 10 per cent industrial growth logged during the first eight months of the current fiscal. However, the high GDP growth estimate number being bruited for this fiscal is akin to what is figuratively said one swallow does not a summer make.

The country today is a silent witness to high commodity price rises with even common consumption goods such as vegetables and basic goods and fuel for the aam aadmi going through the roof, providing no solace to the millions whose income is not indexed to inflation.

It is not just domestic prices but global food and commodity prices too are ruling high with crude oil prices hovering above $90 a barrel. With India's import of crude oil more than 75 per cent, the portents for the high growth party poopers are dismally distinct unless the authorities focus their attention on surmounting supply constraints and making available items of mass consumption at affordable prices and in reasonably adequate quantities, besides putting in place some supportive measures to sustain industrial production from any deceleration.

No wonder, policy analysts at home and abroad say strong economic growth in India in recent years has exposed chronic infrastructure deficiencies. Supply side inflation pressures are intensifying, says Moody's Analytics, with inefficient farming techniques, increasing urbanisation of farming land and distribution bottlenecks heightening price volatility. Instead of wasting precious time in finding out how to raise private investment through public-private partnerships (PPP), the Government should put in place a strong regulatory body in each one of the vital infrastructure domains such as roads, railways, shipping and airways so that investors, both domestic and foreign, get the right impetus to bet their money on India's growth story to sustain their returns over the long haul.

geeyes@thehindu.co.in

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Published on January 13, 2011