Glimmer Of Hope?

17 Nov,2012 08:54 IST

Glimmer Of Hope?

Mixed signals keep us guessing about where the economy is headed

All those hoping that Indian economic growth had bottomed out and that the only way was ‘up’ from here on, were likely shocked by the 0.4 per cent contraction in the Index of Industrial Production (IIP) figures for September, released last week. The manufacturing index was down, as was capital goods, consumer durables and consumer goods. If that was not bad enough, the trade data for October came in — and it showed that the country’s trade deficit was a record $21 billion. Then, retail inflation rose once again in October, to reach 9.75 per cent, further depressing sentiments.
If that was not enough, the government’s 2G spectrum auction was a damp squib, raising less than Rs 10,000 crore against the Rs 40,000 crore target. That leaves a question mark over the finance minister’s revised fiscal deficit target of 5.3 per cent. 
The global sentiment was also fairly damp. In the US, Barack Obama may have won a second term, but he still has to deal with the “fiscal cliff” that his country faces due to budget cuts. He needs the cooperation of rival Republicans, which may not be easy.
Meanwhile, the 17-country euro zone announced it had slipped back into recession. Some economists expect its economy to continue shrinking into 2013.
Despite the gloom and doom in general, there is a trickle of good news coming in. In the US, consumer confidence is improving, housing is recovering and construction jobs are coming back. The shale gas revolution is also easing its energy situation.
In India, too, there are things to cheer about. Automobile companies reported a sales boom in October (auto purchases are the earliest indicators of consumer optimism). Meanwhile, IT services companies are reporting increased spending in the US, their biggest market. Also, surveys by recruitment firms show that hiring is picking up, and HR managers are optimistic about hiring in the next six months. Manufacturing PMI data for October was also marginally up, though services PMI data was lower.
The bits and pieces of good news do not mean that the economy is out of the doldrums. But if the trends persist, the worst may well be over. The data coming in the next two months will show which way we are headed in the medium term.

(This story was published in Businessworld Issue Dated 26-11-2012)

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