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Dismal economic data adds to government’s woes
-The Times of India

There was no let up in bad news for the government on the economic front. Amid the debate over slowing economic growth, data released by the Central Statistics Office (CSO) on Tuesday showed industrial output fell 0.6% in December, posing fresh policy challenges.

This is the second successive month of decline for factory growth which has remained anaemic due to a string of factors including high interest rates, slowing global economy, stubborn inflation and delay in policy approvals. The November data was revised downwards to a decline of 0.8% from the previously estimated 0.1% expansion.

Adding to the worry for policymakers is the stubborn retail inflation led by a spike in food prices. Retail inflation continued to remain in double digits in January, rising an annual 10.79%. It stood at 10.56% in December. Food and beverages prices rose an annual 13.36% in January while vegetable prices shot up 26.11% year-on-year.

The disappointing set of economic data comes against the backdrop of the raging debate over the strength of the economy. The CSO has forecast GDP growth to be 5% in 2012-13, the slowest pace of growth in a decade, while the finance ministry insisted that the economy would grow by 5.5% or slightly more in the current financial year. It had insisted that the CSO had used data up to November for its GDP forecast while the statistics department had said it had followed its guidelines.

Factory data has remained sluggish for a significant period while soaring food prices have been a policy challenge for the past nearly three years. While the industry numbers have remained volatile, posing a challenge for economists to derive a trend, it has consistently pointed to weakness.

The manufacturing sector, which accounts for a significant chunk of the industrial data, fell 0.7% in December compared to 28% expansion in the year ago period. The mining sector, hit by delay in approvals and environmental clearances, fell 4%.

The capital goods sector, which is a barometer of industrial activity, continued to decline, slipping 0.9% in December compared to the 16% fall in the year earlier period. The consumer durables sector fell 8.2% in December compared to a 5.1% expansion in the year ago period while the consumer goods sector declined 4.2% compared to a 10.1% growth in the previous year ago period.

Indian industry called for a bold budget to revive demand and sentiment and hoped that the Reserve Bank of India (RBI) would accelerate interest rate cuts in view of slowing growth.

"We hope that the Union Budget will take bold decisions to rejuvenate demand and boost investor confidence which in turn will stem the slide in industrial production. The reform agenda brooks no delay," said Chandrajit Banerjee, director-general of CII.

"We hope the RBI will take note of the industrial situation and accelerate the reductions in interest rates. We hope that the calendar year would see at least a 150 basis points cut in repo rate," Banerjee said.

Economists said the government must continue reforms to boost growth and reverse the declining trend.

"While the government has taken several measures since September 12 continued action from all policy makers is needed to reverse the decline across all the macro variables," Rohini Malkani, economist at Citigroup India, said.

"Key to watch in the coming weeks is the WPI print due on February 14, upcoming budget due on February 28, effectiveness of the Cabinet Committee on Investments and whether it can stem the decelerating trend in projects stalled and new project intentions," she added.