about 2 years ago
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By Ruma Dubey

The statistics is out – inflation is slowly but surely raising its head and growth is showing sure signs of a slowdown.

The August retail inflation or CPI came in higher at 3.36% v/s 2.36% in July while it was -0.1% in June. YoY, surely there has been an improvement from 5.5%. Driven mainly by rise in food prices, this was price rise for Aug’17 was much higher what was estimated by most analysts.

The internal dynamics of CPI on MoM

  • Consumer food price at 1.52% v/s -0.36%
  • Vegetable prices at 6.16% v/s -3.57%
  • Pulses price at 24.43% v/s –24.75%
  • Fuel inflation at 4.94% v/s 4.84%
  • Housing inflation at 5.58% v/s 4.98%

On the other hand, IIP for July came in at 1.2% v/s -0.1% in June and 1.7% on YoY. This means that the effect of GST rollout and tapering effect of demonetization is slowly waning? But the fact remains that the growth is very slow, especially when the Govt needs to work hard on increasing employment for the teeming youth of India. The fact remains that growth is slow, especially manufacturing at a pathetic 0.1%, which actually goes on to show there is massive under-utilization of capacity.

Eight out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of July 2017 as compared to the corresponding month of the previous. The industry group ‘Other manufacturing’ has shown the highest positive growth of 20.9% followed by 18.9% in ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ and 10.5% in ‘Manufacture of other transport equipment’. On the other hand, the industry group ‘Manufacture of tobacco products’ has shown the highest negative growth of (-) 43.4% followed by (-) 11.1% in ‘Manufacture of electrical equipment’ and (-) 8.8% in ‘Printing and reproduction of recorded media’.

The only answer right now is spending from the Govt – unless Govt steps up and increases investment spends and generates employment, only a rate cut will not help. Private spending will go up only when public spending does thus this is what the need of the hour is. Fiscal stimulus is not the best way out as it could topple the fiscal deficit cart but it’s the only way out – public spending of the right kind of create employment is what is needed or else this could have a cascading effect all over.

Within the bucket of overall IIP is a bigger weight and slowing down of all sectors is worrisome. Electricity and mining are the two sectors which did well but the manufacturing sector limping is what needs to be addressed on a war footing. The stock markets are going rah-rah, with no one really knowing the reason for this unwavering optimism. We are now looking at 10,100 for Nifty – on what are we building this rise?

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