APRIL IIP - AT LEAST IT IS NOT NEGATIVE!
By Ruma Dubey
It was disappointment but because it was expected, the pain was not as acute as that in March. IIP of 0.1% shows that the investment slowdown pace continues; there is no respite from that as one can see from the capital goods numbers. Only solace is that the consumer goods and consumer non durables have shown a pick up.
Slow growth is consitently driven by investment collapse. Cutting interest rates is not the sole medicine and is not enough but tseems to be the only step at the moment which can buoy the sentiments to some extent. Those in the market feel like it’s a slam dunk decision – that RBI will cut rates. But one has to take a bigger view and look at other macro factors, especially inflation and the depreciating rupee. The inflation numbers are to come in on Thursday and if there is a spike up, then we can be sure that RBI will not ease rates. And even if it does ease rates, it will not be aggressive, it would be very nominal, 25 bps and will that really make a difference to the market? It would be just for boosting sentiments, may not serve much purpose. Banks might not a 25 bps as a cue to bring down rates. Logically, keeping sentiments away, RBI will be very wary on engaging in further rate cuts. Last time itself RBI had indicated that there is little room for rate cuts and thus should ideally should not indulge into any more monetary easing. Infact it was laughable when some sections of the media and analysts stated that as China has eased its rates, RBI should also take the cue and cut rates. Well, if you compared tomatoes with oranges, this is what will happen!
The ball has been in the court of the Govt for some time now. Everyone but the Govt seems to agree that there is policy paralysis. Infact the very mention of ‘policy paralysis’ gets a bored expression from people; the perception being that nothing is going to be done.
Last week, the mere mention that the PM had called a meet to explore ways to give impetus to infra sector growth pushed the markets up to over 400 levels. But that was that – it was just talk, no walk. Yet, it indicates that the market is ready to shrug off all bear sentiments if the Govt shows initiative. And therein lies the entire problem. The Govt is expected to sit on its hands till the Presidential elections are over and done with. So till then, we can continue beating down the Govt, which is so thick skinned, it will not really matter what the entire country and statistics says.
Let us now wait and watch the inflation numbers expected on Thursday, 14th June. Ideally, RBI should not cut rates and even if it does, it would be a token 25 bps, which will be more psychological. Mumbai has done its bit, it’s now time for Delhi to act.