Ominous slide   33 comments


‘No fresh investment is being made in industries.”
Month after month the basic indicators of economic growth are showing red signals, one more foreboding than the earlier one. Industrial production had been registering slower and slower growth for many months now and  the latest figures have actually moved into the negative territory.

The minus  5.1 growth shown by the Index of Industrial Production (IIP) for the month of October is the steepest fall  in 28 months and it may point to an industrial recession in the making. Before the intervening period of some, though sluggish, growth there was continuous contraction for over six months, as a result of the global financial turmoil and slowdown. Now the industrial sector is back in the same negative groove. There are indications that November figures, when they are available, won’t tell a different story.

The most ominous aspect of the October fall is that it is mostly accounted for by the non-performance of capital goods, manufacturing  and mining sectors. These are key areas that have the most say in economic growth. Capital goods production has fallen by a whopping 25 per cent and the contraction in the previous month was 6.5 per cent.

This is a reflection of the falling investment activity and loss of confidence of business and industry. No fresh investment is being made and there is a shying away from expansion of capacity. Only power production has shown some growth but this is bound to be hit now because of the problems associated with availability of coal.

Adding to the dire situation is the impact of the series of monetary measures effected by the Reserve Bank of India. The RBI had warned the government that its rate changes would not help if there was no supporting effort. Tax revenues  are falling and the fiscal deficit  going out of control.

The government’s hopes to contain inflation and maintain economic growth at above 7 per cent, expressed in the mid-term economic review, seem too ambitious in the present context. There is no justification in blaming the external environment for the slide in the economy.

It is the paralysis that has gripped governance that is the root cause of the malaise. The government has been weakened by a siege within and from outside and has shown no will to get the better of the situation. This is the crucial time for it to act if it wants to stop the slide, which is threatening to get worse in the coming months.

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Posted December 14, 2011 by avinash2060 in Recession

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33 responses to “Ominous slide

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