After industrial production fell in March, many have doubted the advance estimate numbers that peg the growth of the Indian economy at 6.9 per cent in 2011-12. However, Prime Minister’s Economic Advisory Council Chairman C Rangarajan is still hopeful the economy may indeed have expanded at that rate. In an interview with Dilasha Seth, he says if non-food manufactured products inflation declines further, the Reserve Bank of India (RBI) would have greater flexibility to tackle growth. But if it doesn’t, the central bank would be in a catch-22 situation, deciding between growth and inflation. Edited excerpts:
The sharp contraction in industrial production has led to many economists doubting the 6.9 per cent growth in the previous financial year, according to the advance estimates. Do you think the economy grew 6.9 per cent in 2011-12?
GDP (gross domestic product) growth at 6.9 per cent for 2011-12 is still achievable, as the projection for manufacturing at three per cent in GDP data wasn’t much higher than 2.9 per cent in the data for the index of industrial production. However, agriculture may be better than originally estimated, owing respect to the bumper wheat production that would compensate for the decline in manufacturing numbers. So, I do not see any strong deviation from the originally estimated 6.9 per cent.
The fall in export numbers in March did give some indication of contraction in factory output. Do you think the slackening demand abroad led to a fall in industrial output in March?
The contraction in industrial production is corroborated by the contraction of exports in March, as external demand is not strong for some commodities. However, this cannot explain the entire industrial growth slowdown, as external demand does not exist for all commodities. The industrial production numbers are certainly disappointing. One did not expect a contraction. The sharp decline in capital goods contributed to the decline in industrial production.
Industry chambers have asked RBI to cut policy rates further. What should the central bank do in the current scenario?
RBI would take into account the trends in both industrial production and inflation.
Inflation in non-food manufactured products stood at about five per cent in March. If the trend continues, RBI would get great maneuvering power to concentrate on growth. However, if non-food manufacturing inflation rises again, the central bank would be in the classic dilemma of growth versus inflation.
Mining output contracted for the eighth month in the previous financial year. It had briefly risen in February, before contracting in March by 1.3 per cent. Why is the mining sector not recovering?
Natural gas is still negative. However, coal, which was negative for the first six months of the previous financial year, picked up very well, at least in the last quarter .Mining would become positive in the current financial year, as coal continues to grow positively.