The Quibble Over The Slowdown
Officials maintain that a definitive view on the issue can only be taken once more economic information is made available to the government. "It is still too early and there are contradictory signs in the data that we have at our disposal. We would like to await more information," they said.
The tell-tale signs of the slowdown are the decline in offtake of commercial bank credit, let-up in import growth and deferring of investment decisions by corporates in the light of the stickiness in interest rates -- with inflation declining to single-digits the real rates of interest have climbed to an unprecedented 15-17 per cent.
"There are clear signs of a slowdown in economic activity. The real interest rates are squeezing investments and the capital markets offer no succour to promoters," says N J Jhaveri, former CEO of I-Sec.
Contradicting these trends is the latest data on industrial production. After dropping to 7.7 per cent in April, the index of industrial production shows reflects a sharp pick up with the rate of growth at 12 per cent.
However, a sectoral review of the latest indices of industrial production show a clear slowdown in the growth rates in the consumer goods segment -- which is normally the first sector to get affected. The use-based classification of the index of industrial production released by the CSO reveals that the rate of growth was 10.7 per cent in consumer goods (as compared with 18.3 per cent in May 1995), 8.3 per cent in consumer durables (25.2 per cent ), and 11.4 per cent (16. 3 per cent) in consumer non-durables.
The finance ministry does, however, concede that the real interest rates are at an unusual high in the economy and, if not brought down, could arrest the growth momentum. Significantly, the last time real interest rates touched these levels in the economy was in 1991-92 and 1992-93. These were also the years, when the economy was sliding into a phase of low growth rates.
"At present the real interest rates are higher than that achieved by the rate of growth of the economy. This is not sustainable and parity will have to be restored. It is nothing but nature's way of slowing down the economy to more realistic levels," say officials.
Eventually, the slowdown (if it materialises) will take its own toll on the economy and particularly of the government's fiscal arithmetic. Ministry officials concede that there could be a slippage in revenue targets, even while the review of the year so far indicates that all is well.