Young Indian

‘It (economy) is not in trouble’: Data released by Govt contradicts Sitharaman

Fatima Khan for BeyondHeadlines

Just a day after Finance Minister Nirmala Sitharaman said the economy “is not in trouble” citing seven green shoots – two sets of macroeconomic data released by the government on Wednesday painted a contrasting picture.

One of the seven green shoots listed out by Sitharaman in Lok Sabha on Tuesday was industrial production. However, the Index of Industrial Production (IIP) data released on Wednesday showed a contraction in December with a print of minus 0.3 per cent.

Manufacturing and electricity sectors’ growth fell by 1.2 per cent and 0.1 per cent. However, the mining sector grew by 5.4 per cent.

“The cumulative growth in these three sectors during April-December 2019 over the corresponding period of 2018 has been 0.6 per cent, 0.5 per cent and 0.8 per cent respectively”, according to the data released by the National Statistical Office under the Ministry of Statistics and Programme Implementation.

While replying to a debate on the Union Budget 2020-21 in the Lok Sabha, Sitharaman had said, “It is (economy) is not in trouble — I am giving you green shoots.”

There is another set of data, also released on Wednesday, that showed all is not well in the economy.

The Consumer Price Index-based inflation in January inched up to over five-year high of 7.59 per cent. The data becomes a bigger cause of concern at a time when the economy needs monetary policy leg-up.

The inflation in January remained persistently high due to high prices of vegetable, pulses and protein-rich items like meat and fish. Overall food inflation stood at a high of 13.63 per cent in January, according to the data.

Inflation in vegetables surged to 50.19 per cent and in ‘pulses and product’ to 16.71 per cent. Prices of meat and fish jumped by 10.50 per cent, while that of eggs rose to 10.41 per cent.

“After touching a record low 3.5% in October 2019, core inflation is rising and hit a 5-month high of 4.2% in January 2020,” said Sujan Hajra, Chief Economist at brokerage firm AnandRathi.

Interestingly, the Reserve Bank of India (RBI) has a comfort zone for retail inflation of 4 per cent with a band of (+/-) 2 per cent — which means 2-6 per cent. This 7.59 per cent Consumer Price Index-based inflation makes it difficult for the RBI to go for any repo rate cut to bolster the falling GDP growth.

Earlier this month, the central bank kept the key policy rate unchanged due to concerns over inflation. Now also, it has become highly likely that the RBI will maintain the status quo in the next monetary policy review. Thus, no support to economic growth is expected from the RBI.

Given the GDP growth target of 6-6.5 per cent and Rs 2.1 lakh crore of disinvestment planned for the next financial year, the economy needs to be robust to support the Budget Estimates.

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