|
| Rising risks pose uncertainty on growth scenario |
| Arun Singh / New Delhi Jun 27, 2011, 18:47 IST |
|
 The optimism which prevailed nearly a year back about the growth trajectory of the Indian economy is now mired with concerns of a slowdown with several risks posing impediments to growth. Indicating the moderating pace of economic activity, the GDP continued its downward trend during Q4 of FY11. Despite the robust output in the agriculture sector, the constriction in the growth momentum in the services and the poor performance of the industrial activity had led to the moderation in the overall economic activity. The recent data on index of industrial production also show a slowdown in the industrial activity during April 2011 from the levels recorded during March 2011. However, the new data series on IIP from April 2011, which include new components and revisions in base year and weights shows that the IIP slowed down to register a growth of 6.3% as compared to only 4.4% as per the old series. Moreover, a trend analysis of the used based classification of the new IIP series highlights resilient growth in capital goods production raising questions regarding concerns on slowing investment activity. According to the old series the data on the capital goods segment, which is an indicator of the investment activity, remained negative at an average of 5.3% during December 2010 to April 2011, while the new data series reports that the capital goods segment posted a robust growth of 10.3% during the same period.
Nonetheless, it does not dilute the apprehensions regarding the investment momentum. More so, when factors such as unrelenting rise in input prices, hardening of interest rates and anticipation of further hikes in the event of persistence of high inflation, squeeze in the corporate profitability and signs of moderation in the demand conditions pose as major barriers to the investment and consequently to the industrial production going ahead. With the figures for the consumer durables, especially car sales recording a drastic fall, demand conditions seems to have been impacted by the rising interest rates and inflationary pressures.
Price pressures continue to deter the domestic economic activity; while the high manufacturing products inflation continue to raise concerns, domestic fuel prices still do not reflect the trend prevailing in the global market and the recent hike in the minimum support prices of paddy and other khariff crops is also likely to exert further upward pressure to the food price inflation. Besides, the sustained rise in prices which continue to dampen the domestic economic activity, there exist certain other risks which has the potential to further clamp down the overall growth levels such as; the lower output in the mining & quarrying sector might pose bottlenecks regarding the availability of raw materials to the manufacturing sector, the shortage of infrastructure, especially in the power sector and the recent forecast on below normal monsoon rains. Besides, on the global front, uncertainty about the global crude oil prices in the event of continued political turmoil in the Middle East and the North Africa, slow recovery in the US and the sovereign debt problems in the Euro area still continues to preside.
(The author is Senior Economist, Dun & Bradstreet India)
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
