Ourview | More signs of a slowdown

Ourview | More signs of a slowdown

The industrial output numbers released on Wednesday by the government confirm that the Indian economy is losing momentum. Indeed, the slowdown threatens to be far sharper than what is commonly assumed. The big question is whether inflation will also taper off, or else India could be headed towards an Indian version of stagflation: below average growth and above average inflation.

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News Report

Industrial output growth sluggish in August

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Further, other indicators such as car sales, orders with capital goods companies and cement dispatches also point to a slowdown. Investment activity has been muted for a long time thanks to the policy paralysis. But there are now signs that consumer demand is also taking a hit. Exports have had a great run, but we doubt they can sustain their momentum in the second half of this fiscal, given the global downturn.

Earlier, the Purchasing Managers’ Index (PMI) created by HSBC was at a 29-month low, coming in at 52.6. A reading above 50 indicates expansion of output.

By Jayachandran

In case industrial output continues along its present path and services growth slows, a distinct possibility given the fact that the August reading for services PMI was below 50, then the Indian economy could be headed towards sub-7% growth, unless agriculture springs a positive surprise.

With inflation still persistently high, the Reserve Bank of India has a serious battle on its hand. It can at best decide to wait and see whether the sharp growth slowdown eventually takes pressure off prices, though the PMI data on input and output prices does not suggest that this will happen anytime soon. But it is too early for the Indian central bank to take its eyes off inflation and try to get the growth engines purring again.

So who can do the job? Answer: The government, with measures to build confidence and fresh economic reforms. But the Manmohan Singh government has been asleep at the wheel for too long to expect it to suddenly get on with the job.

Is the government aware of the dangerous economic situation that prevails in India? Tell us at views@livemint.com