Dashing even the faint hope among policymakers after the second-quarter GDP data was put out a few days ago that the economic slowdown may have bottomed out, industrial growth slumped 1.8% in October, although on an unfavourable base. The relapse to negative growth after a gap of three months was mainly due to a tepid show turned in by the core sector industries that brought down the growth in manufacturing, which accounts for over four-fifths of the relevant index, to minus 2%.
The bleak Index of Industrial Production (IIP) data released on Thursday came on top of a series of dismal data — consumer inflation inched up to 11.24% in November, compared with 10.17% a month before, export growth slowed to a five-month low in November and core sector output too shrank in October.
The slowing of exports growth to 5.86% in November and the recent deceleration in import growth (minus 16% in the three months to November) had earlier convinced many that a turnaround for the economy was not in the offing. Double-digit growth in exports from July to October, aided by the rupee's fall, had moderated the adverse impact on demand from subdued domestic consumption and investment. With growth in exports tapering and domestic demand weak, there is little hope for the economy to look up soon.
The government is planning major cutbacks in spending to meet the fiscal deficit target. With little signs of a front-loading of expenditure (particularly to the June quarter) boosting demand significantly and analysts discounting the impact of the projects fast-tracked on investment, economists said a revival would be seen no earlier than the second quarter of next fiscal. Even this, pertinently, would hinge on the ability of the post-election government at the Centre to inspire investor confidence.
"One thing is very clear. There is no decisive economic recovery in sight. The trend of economic growth declining and inflation remaining high is not a good sign," said DK Joshi, chief economist, Crisil. Crisil has forecast an economic growth of 4.8% for the current fiscal. On Wednesday, Reserve Bank of India governor Raghuram Rajan said that “some glimmerings” of a revival were about to be seen, while sticking to an earlier growth forecast of 5%.
India's GDP grew 4.6% in the first half of this fiscal — 4.8% in the second quarter and 4.4% in the first quarter.
What's worrying is that a pick-up seen for a