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Poor macro economic data to turn Winter Session colder for UPA

Friday, 23 November 2012 - 12:39pm IST | Place: New Delhi | Agency: Zee Research Group

Rising inflation, depressing WPI and CPI figures, lowered exports and disappointing trade deficits data in addition to unwilling opposition over the FDI indicate a stormy winter session for the govt.

As the UPA government tries to win over a reluctant opposition over the issue of Foreign Direct Investment (FDI) in retail and insurance, the growing all-round negativity in the macro economy data has already dampened the positive sentiment anticipated by slew of reforms measures announced by P Chidambaram after his re-induction as the finance minister.

The UPA government, which earlier faced a turbulent monsoon session, is facing the winter session, which began on November 22, in the backdrop of all-round negativity in macro economic data released around Diwali. Barring the rally seen in the stock market (Sensex) which closed at the highest level (19058) in 2012 on October 4, post Chidambaram policy boost, the economic activity levels remain weak and this can easily be judged by rising fiscal deficit worries made worse by much lower than expected telecom spectrum auction receipts earlier this month.

India’s industrial production (IIP) figure for the month of September registered a 0.4 per cent de-growth as against a growth of 2.3 per cent posted in August. This figure came in below market expectations of nearly 2.8 per cent. Capital goods as usual remain a huge worry. Interestingly, this is the seventh consecutive month that capital goods output has contracted on a year-on-year basis. The negative growth of 12.2 per cent in capital goods shows that investment cycle is still in trough phase (slow down). Moreover, the fall in manufacturing sector (with weight of 75.5 per cent in IIP) is a matter of another grave concern.

Another macro data which indicates the sluggish growth rate of economy is the Consumer Price Index (CPI) inflation rate. This inflation rate at the retail level edged up closer to double-digit territory at 9.75 per cent in October as against 9.73 per cent in the previous month. The higher figure was driven by rising prices of food items such as sugar and pulses.

Similarly, trade deficit for October has widened to an all-time high of $20.96 billion from a deficit of $18.1 billion in September; exports during the month declined by 1.6 per cent as compared to the corresponding period last year. India’s exports fell for the sixth consecutive months due to the turmoil in global markets. However, imports posted an increase of 7.4 per cent on yearly basis. This is the strongest increase in the seven months.

However, lower Wholesale Price Index (WPI) inflation rate for October may have provided a little relief to the government. It declined sharply to 7.45 per cent as against 7.81 per cent in August. However, two negatives can clearly be seen in the inflation print. First, the core inflation is still above RBI’s comfort zone and secondly, the upward revision of August inflation rate reaching 8 per cent. Even, RBI governor D Subbarao recently accepted the fact that the headline inflation rate of 7.5 per cent is still quite high.

It’s not that the latest macro figures are weak but the year 2012 in general has been a tough one for India’s macro economy, characterised by sticky inflation, slowing growth, and high fiscal and current account deficits. However, this winter session of Parliament has been keenly watched as a number of important reform bills, like land acquisition bill, banking laws (amendment) bill, pension and insurance reform bills, mines and minerals bill, and new companies act, are likely to be introduced. If these are passed, this would provide much needed impetus to the economy. However, looking at the warring ruling and the opposition parties in the Houses, the functioning of the Parliament looks a bleak prospect.

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