There is one school of thought which holds that the Indian economy is presently adrift with the Government not taking any major decisions – some routine (like allowing grain exports) and others distinctly reform-oriented – the firmest indication of which was conveyed in a recent survey of 75 companies.

Among the findings, the most sweeping was that more than three-fourths of those surveyed were clearly “unhappy” with the way the UPA-2 Government was conducting economic and political policies, a good 72 per cent anticipating that the “crisis in governance was going to hurt economic growth”. Some 80 per cent felt that even the pace of “routine decision-making” had slowed down, with 15 per cent expecting that the present drift would affect their business and investment plans .

Infrastructure data

These, of course, are expectations, but, as far as businessmen are concerned, ones which are based on real-economy movements. What, in fact, are these movements? The most recent set of official figures pertaining to the infrastructure sector – the six core industries which comprise this sector account for a combined weight of 26.7 per cent in the index of industrial production (IIP) – clearly suggest that the economy is slowing down. Specifically, the figures for April (the latest month for which they are available) indicate that output in this sector (comprising crude oil, petroleum refinery products, coal, electricity, cement and finished steel) grew at their slowest in five months. Common sense suggests that if there is so persistent a slowing-down over a half-year period, then something is wrong with the mainsprings of economic growth.

Advance-tax figures

But, then, there is another school which feels that, despite the Government not being as active as it should be, there are indications which point to the economic situation not being so deep in the doldrums. For this group, the beacon is the advance-tax figure which, during the first quarter of 2011-12, grew at a 76.8 per cent on the year-earlier period. In view of the fact that growth in the two preceding quarters was 30 per cent and 19 per cent, respectively, the legitimate conclusion is that Indian business is looking ahead to a period of increased earnings, which in turn is being interpreted as indicating that the economy generally is still in good health with expectations being optimistic.

The point at issue is: can both the figures co-exist ? If they can, then how does one view the economy's prospects in real terms?

As is clear, this is a complex issue . What can, however, be said with some degree of certainty is that the economy is facing a difficult time with inflation rearing its head and the Reserve Bank all set to combat it by sticking to its policy of raising interest rates, thereby increasing costs for economic operations. Very recently, in view of an unacceptable subsidy-burden level, the Government raised the diesel price (among other petroleum and petroleum-based items), which must necessarily raise transport costs and thus the inflation rate even further in the months ahead.

Growth and inflation are not necessarily mutually exclusive elements in the national economic picture. But they can take up opposing roles if rising inflation begins to affect demand adversely. The all-important question is: how far away are we from this point? Clearly, reform policies can help out in this situation, but for this, the Prime Minister needs to take the initiative.

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