StatsGuru-01-January-13

The Reserve Bank of India is due to announce its third-quarter review of monetary policy on January 29, and it faces a severe dilemma. As Table 1 shows, the Indian growth story has stalled, with gross domestic product growth below 5.5 per cent for the past three quarters. This is, in particular, a product of stalled industrial production. As Table 2 shows, the index of industrial production has shown anaemic growth lately. Nor are the signs propitious for the future: Capital goods production has dipped well below zero growth again, as is visible in the same table. The expectation has grown that the RBI will have to cut rates to restore manufacturing and investment growth.

However, the RBI has expressed concern about consumer price inflation which, as Table 3 shows, has stayed high – and, indeed, registered a bit of an uptick lately. However, as Table 4 shows, this is in spite of the fact that wholesale price inflation has dipped recently, and inflation in the price of manufactured goods has in fact gone close to a relatively comfortable 5 per cent. The problem, as the same table reveals, is that inflation in the price of primary articles has gone sky-high. Oil prices, as Table 5 shows, have not shown any signs of declining to comfortable levels.

It is also true that transmission of a rate cut will be problematic. As Table 6 lays out, credit growth has in any case outpaced deposit growth – unsurprising, given high inflation rates – and deposit growth has slowed even further recently, with a corresponding dip in credit growth. However, yields on government securities have also declined below 8 per cent, reflecting a moderation in crowding out, as Table 7 reveals. Liquidity is not as much of a problem for the RBI as it was all through December either, as Table 8 shows.(Click here for table)