Course correction

The latest numbers on factory output and retail inflation are not exactly encouraging for those expecting a GDP growth of 7.6 per cent this year, against 7.3 per cent in 2015-16. The factory output index was up just 0.1 per cent in March (an unflattering 2.4 per cent for the whole year), despite a low base effect. What’s worse, there has been a steep downturn after October 2015, with the following three months recording negative growth and February turning in a growth rate of just 2 per cent. The post-October slide is explained by the pronounced decline in capital goods and consumer non-durables. The huge disparity between the performance of consumer durables and non-durables, the former growing at double digit rates in 2015-16, tells a socio-economic tale: urban demand has held up, even as rural demand has slumped. The reasons for this rural-urban divide are not far to seek — while 2014-15 and 2015-16 were bad agriculture years, food inflation (specifically protein inflation) remained elevated, reducing the disposable income in rural India for mass consumer items. Moreover, drought-like conditions in many parts of India in March and April have led to a spike in food inflation to 6.4 per cent in March, against 5.4 per cent and 5.2 per cent, respectively, in January and February. As always, future price and output scenarios would depend critically on how the monsoon pans out this time. While the Seventh Pay Commission will shore up urban demand, the rural economy is in dire need of a natural as well as policy stimulus.

The poor industrial output data do not sit well with an estimated 9.5 per cent manufacturing growth in 2015-16, even though the latter is a value measure. The new GDP series uses a larger database of companies. While the IIP can at times prove to be fickle, with former RBI governor D Subbarao and former finance minister P Chidambaram expressing their bemusement in the past, the new series raises its own set of questions. While it is argued that small industries have been at the forefront of industrial growth, they seem to constitute an insignificant proportion of the MCA database. Meanwhile, the high growth story is not really borne out by the RBI’s own surveys on industrial performance. The Centre must clear the air, so that the credibility of India’s GDP statistics is not affected.

An investment-constrained economy needs a public investment push, with India Inc still too debt-strapped to take the initiative. The Centre must walk the talk on investment, in keeping with the spirit of its 2015-16 Budget.

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