Fiscal indicators encouraging; they must sustain
Slowly but surely, the country's economy is showing signs of improvement, though it would be too early to say that we are out of the woods. A sense of complacency should not creep in, because the positive trends have to be sustained for a considerable period of time before it can be said with certainty that the economy is truly back on the track.
There can be many reasons for the indicated recovery, but one that cannot be downplayed is the new energy and upbeat investor sentiment which a change in Government at the Centre has brought. Retail inflation dropped to 5.52 per cent in October — the lowest since January 2012 — which offers an opportunity to the Reserve Bank of India to finally take the much-anticipated step of reducing interest rates so that the consumer goods industry gets a boost through enhanced consumer spending. Whether it does so, remains to be seen, since RBI Governor Raghuram Rajan has been treading a cautious path for very valid reasons.
The RBI's announcement in the coming quarterly review is awaited. The Index of Industrial Production shows that factory output in September went up to 2.5 per cent; the IIP itself grew 2.8 per cent during April-September as against 0.8 per cent in the same period during the last fiscal. Given that factory output has grown, it can be assumed that the increase in production would have led to more and better utilisation of capital goods and labour, and also some increased consumer spending, despite the prevailing high rates of interest. Also, a host of other indicators have turned out to be positive, leading to the belief that finally the economy is turning round the corner. For instance, capital goods' production has gone up to 11.6 per cent in September, from a decline of 6.6 per cent during the same month last fiscal; the mining sector grew by 2.1 per cent during April-September as against a contraction of 2.5 per cent last fiscal in the same period. It means that there has not just been a recovery but also that the negative growth has been overcome.
The reduction in fuel prices over the past few weeks and the recent de-regulation of diesel prices is certain to boost the economy. Fuel rates are expected to be slashed yet again, and if this happens, it will be the cherry on the cake. Meanwhile, the overall trends should be welcome news for the Narendra Modi Government, which is seeking to draw new lines on the economic map of the country with its Make in India campaign, enhancement of foreign direct investment in, railways, defence production and insurance sectors, and ambitious trade outreaches to near and far neighbours. Equally importantly, if the positive indications hold out, Union Minister for Finance Arun Jaitley will be encouraged to present a few bold and game-changing measures in the forthcoming Union Budget and shut his opponents.