Reality Check On The Economy

Lack of real time data to impact policy-making
  • While economists discuss price rise in terms of inflation or inflation expectations, for the common man it is the burden of increased price and an anxiety over its future. Inflation expectations are considered to have hardened if majority of consumers do not think prices of say essential commodities would come down.
  • Nor does the common man, for who economic growth manifests in terms of employment, relate to the statistical figures thrown up during debates over GDP or India’s growth track.
  • With election season running, the govt cannot announce any policy measures and even the data released are routine such as monthly inflation numbers, both WPI (wholesale price index) and CPI (consumer price index), the index of industrial production (IIP) data the monthly and annual trade figures of the Ministry of Commerce and Industry.
  • Neither will CSO’s (Central Statistics Office) GDP growth estimates or the next monetary policy review of the RBI be made before the election results are out.
  • Indications of seasonal data releases of the past few weeks:
    • Deceleration in exports for second consecutive month, after an initial a revival due depreciating rupee and economic recovery in the U.S, is worrisome. Whole year (2013-14), exports at $312.35 billion was $13b short of the target. Imports fell by a over 8% and trade deficit (imports minus exports) was at a three-year low at a little over $138.59 billion.
    • Narrowing of the trade deficit is a welcome development only when seen due to export revival and not just imports contraction. Contrary wise, a reduction in non-oil imports indicates economic slowdown.
    • While gold and silver imports declined sharply due to stringent government restrictions, oil imports were higher.
    • The rupee has shown signs of appreciating recently. Currencies of some competing countries have been depreciating alongside this.
    • India’s weak manufacturing growth is another factor as also uncertainty at the global level.
    • IIP, a measure for industrial activity, saw a decline. Manufacturing and consumer durables declined. Mining recovered and electricity posted a robust growth.
    • Industrial output fell by 0.1 % compared with 0.6% growth last year.
    • WPI rose to 5.7 %, CPI inflation to 8.31%. Higher food inflation — costlier vegetables, fruits milk and milk products — are behind the rise in both the indices.
    • Amid weak growth, the RBI would find it difficult to hold back rates.
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Exams Perspective:

  1. WPI (wholesale price index)
  2. CPI (consumer price index)
  3. Index of Industrial Production (IIP)
  4. Inflation
  5. Exports
  6. Imports
  7. Trade Deficits