oppn parties The Economy is Not Growing Sufficiently

News Snippets

  • Centre sanctions Rs 15000cr for Covid19 emergency response, part of it immediately and the rest over a period of four years in mission mode
  • RBI says Covid-19 has "drastically altered" the growth outlook in India
  • Third coronavirus death in the Dharavi slum in Mumbai
  • Odisha becomes the first state to extend the lockdown until April 30. Schools and colleges in the state to remain closed until June 17th
  • The Supreme Court orders all coronavirus testing, including by private labs, to be done for free, says will look into the matter of reimbursement for private players at a later date
  • Former Pakistani cricketer Shoaib Akhtar proposes an Indo-Pak ODI series to raise funds for fighting coronavirus
  • Maharashtra government says many Tablighi Jamaat members who attended the Markaz and returned have gone into hiding
  • West Bengal government identifies hotspots in Kolkata and the rest of the state, inclined to extend the lockdown in those places only
  • Prime Minister Modi holds a video conference with floor leaders of opposition parties, hints at extending the lockdown
  • UP seals hotspots and makes masks mandatory
  • Masks made compulsory in Mumbai, violators will be arrested
  • ICMR says an infected person can infect 406 people in 30 days without social distancing and lockdown
  • Stock markets make a smart recovery. Sensex up by record 2476 points on global cues
  • Schools, colleges and shopping malls likely to remain closed for a further period of one month, says empowered group of ministers
  • PM Modi tells BJP workers that India is in for a long battle against the coronavirus and there is no scope to feel tired or defeated
Total Covid-19 cases rise to 5734 on Thursday and the death toll stands at 166, says the health ministry in its daily briefing
oppn parties
The Economy is Not Growing Sufficiently

By Sunil Garodia
First publised on 2016-09-13 08:33:07

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Conflicting Data
The latest set of data released by the Central Statistics Office and data from other sources indicates that while inflation is lower and tax collections are robust, industrial output is at its 8-month low and gross fixed capital formation has contracted again. These figures show that the economy is not recovering.

The data shows that:
* Consumer Price Index based inflation is at 5.05 percent, lowest since March.
* Index of Industrial Production (IIP) contracted 2.4 percent year-on-year. Manufacturing was the real culprit, going down by 3.4 percent. The alarming thing was that this reversed the trend in June when the IIP achieved an eight month high of 1.9 percent (revised).
* Tax collection at Rs 5.25 lakh crore, in first five months of this fiscal, was 23 percent higher than in the same period last year. The red flag was lower corporation tax collection, which fell by 1.9 percent.
* Gross fixed capital formation contracted again, the second time in two consecutive quarters, which is an alarming signal that shows no fresh investments.

Where is the expected growth?
The economy is not growing. There will be a chorus of demand for rate cuts by the RBI to generate investment. But the RBI may prefer to wait till December. This is due to several factors. The first is the good to very good monsoon that is expected to ease farm prices leading to still lower inflation. Anything below 4.5 percent will be a huge cushion. The second is the expected upsurge in demand for goods in the ensuing festival season, backed by the rise in salaries (as a result of 7th Pay Commission award) and payment of bonus in both government and private sectors. Pumping in more money in the economy at this juncture could be counter-productive and may lead to inflationary pressures.

Rate cut might not happen before December
The RBI might prefer to wait till December to see what surging demand and lower farm prices does to inflation and the IIP before taking a call on lowering interest rates. To many, that would be too late if India is to achieve an 8 percent growth this fiscal, but given the hawkish stance adopted by the RBI in recent times, that is the most likely scenario.