You just won't believe how vast, huge, mind- boggling
space is. You may think it's a long way down the road to the chemist, but that's
just peanuts to space. — Douglas Adams (1952 - 2001), English science
TThere are telltale signs of a slowdown in the current
fiscal, which we had first captured in an editorial two months ago. Thus, the
growth in industrial production (IIP) slipped from 11.3 per cent in April to 7.1
per cent by July. The cumulative rise at 9.6 per was also lower than 11.1 per
cent in April-July 2006. Manufacturing turned out the worst performance with its
annual growth rate plummeting to 7.2 per cent in July, half the 12.4 per cent in
April. Consumer durables declined marginally and transport equipment
(particularly two-wheeler segment) stagnated in the first four months. The six
infrastructure industries too expanded 1.7 percentage points lower at 6.6 per
cent during April-August, notwithstanding some improvement in the last month.
Bank credit, which showed decline till July 20, has since turned positive, but
the Rs 549 billion rise till September 14 was only around half of the Rs 1 +
trillion increase in this period a year ago. Exports in rupee terms (which are
not affected by dollar depreciation) rose only 6 per cent in April-August -
one-sixth the pace a year ago, and import growth too came down from 22 per cent
to 17 per cent. New project announcements, captured by ProjectsToday, have
maintained their pace in the first half, but mega projects show a perceptible
fall. However, Central government finance data shows 34 per cent rise in Plan
The WPI-based inflation declined to a record low of 3.23 per cent by
mid-September, which was also largely due to food and non-food article prices
which showed 7 per cent rise. Manufactured product prices escalated 4 per cent
and projects outlays, as measured by ERIL Index of Cost of Project Inputs, only
5 per cent.
Overall, the economy expanded 9.3 per cent during Q1 of 2007-08, easing from 9.6
per cent a year ago.
Rupee depreciation, which has adversely affected exports and the industries that
cater to exports, and around 300 basis points hike in interest rates are mainly
held to be responsible for the retard. While the adverse impact of rupee
appreciation is sought to be made good by export sops, the finance minister
wants banks to lower lending charges.
Incidentally, a major factor that is having profound impact on liquidity,
financial stability and inflation/inflation expectations, is dollar deluge.
Here, RBI is facing a daunting challenge of a judicious mix of dollar buying to
limit rupee appreciation on the one hand and containing the impact of dollar
mop-ups on domestic liquidity, on the other. With the financial system already
awash with liquidity, there is at present already very little likelihood of
interest rates going up. In fact, high deposit rates (offered in the last
quarter of the preceding fiscal) are what appear to be coming in the way of
lower lending rates.
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[08 October 2007]