Opinion: Who stamped on the green shoots?

Surge in retail inflation and weak IIP nos raise doubts on the green shoots theory of the goverment

School level biology tells us that in order to see green shoots we need to at least complete the process of preparing the soil and planting and watering the seed. And once the external environment is conducive, we can see the seeds breaking and green shoots become visible. Green shoots do not appear just by talking about them or wishing and praying that they do.

 

A few weeks back, Finance Minister P Chidambaram talked of seeing some green shoots on the economic fields. Similar sightings were also noted by some analysts and economists. But a closer look at the data do not confirm these sightings.

 

Some optimists started sharpening their harvesting tool after current account deficit (CAD) numbers started coming down. Baisakhi and Onam were celeberated at the same time in the markets which touched new highs. But reality has struck back  with a vengeance in the form of inflation and IIP (Index of Industrial Production) numbers.

 

Consumer price inflation again raised its head touching 11.24 per cent for the month of November as compared to market expectation of near 10 per cent. Main reason for the rise is that we did sow enough vegetables. Price increase in vegetables was to the extent of 61.6 per cent as compared to a 45.67 per cent jump in the previous month. 

 

Index of industrial production (IIP) numbers contracted in the month of October by 1.8 per cent, signs that slowdown is here to stay. In fact higher inflation numbers will prompt the RBI governor to increase interest rates, which will push growth further. Bond yields have already moved higher after the CPI numbers were declared.

 

Even as trade deficit numbers are better than expected, two points are worth noting. First, the reduction in imports is not only on account of gold but also oil and non-oil imports in the domestic markets. These reflect persistent slowing of the economy. Second is the slower growth in exports. Restrictions on gold imports imposed by the government to control CAD have started affecting India’s share in the world market of jewellery exports. Lower export growth was also due to a drop in petroleum products indicative of a slower global economy. Reading of both these factors tells us that the only temporary relief we will have is in a stable currency.

 

Government has been talking of a pick-up in growth in the ‘next half’ for sometime now. Over the last few months, the government has been more specific by saying that growth will be visible in the second half of the current fiscal. A number of projects have been cleared by the government after hatching them for four years, but little movement is visible on ground with regard to these projects. IDFC, the premier infrastructure financing company in the country have recently said that it will take at least 18 months to witness some movement on these projects.

 

Recently declared data points and more importantly the actions that the central bank will now take does not inspire confidence that growth will come visiting us in this fiscal. What is however coming our way is elections which will either bring a different farmer or the same one who will be more aggressive and actually start the process of sowing. Probably then we will see some real green shoots. Till such time, let’s try to figure out who stamped on the green shoots that were sighted.