Tuesday, 17 November 2015

Is Indian economy losing steam?

It seems that Indian economy is still not out of the woods as disappointing set of economic data are signaling  weak  momentum for Asia’s third biggest economy.
A slowdown in industrial output growth to the lowest level in four months in September along with a pickup in the pace of consumer inflation to a four-month high in October has put India’s economic recovery in doubt, crimping room for a further interest rate cut in the ongoing fiscal.
India’s industrial production expanded 3.6 per cent, year on year in September 2015, compared to a revised 6.2 per cent annual rise in August 2015, whereas consumer inflation accelerated to 5 per cent in October 2015 from 4.41 per cent in September 2015.
While the 6 per cent retail inflation target for January 2016 will almost certainly be met, Raguram Rajan is likely to keep borrowing costs unchanged on December 1, 2015 amidst a quickening of inflationary pressures and a likely US interest rate hike in mid-December.

RBI in its September bi-monthly monetary policy review had cut interest rate by 0.5 per cent, much higher than the expectations for a rate cut of 25 basis points. The benchmark repo rate has subsequently come down from 7.25 per cent to 6.75 per cent, the lowest in four-and-a-half years.
Adding to the economy’s setback, India’s wholesale prices remained mired in deflationary territory for the twelfth month on the trot in October 2015 reflecting the effects of lower commodity prices owing to global factors and subdued demand conditions.

According to government data, Wholesale prices fell by 3.81 per cent in October 2015 from the same month a year ago.

The key macro indicators evidently point out that the economy still faces several tough challenges and an effective strategy is required to deal with the situation.

Latin Manharlal

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