Dreadful December
The Financial Express, Feb 13, 2009, Page 6
The minus 2% growth in the index of industrial production (IIP) for December 2008 is the lowest on record since 1993, when the index was first compiled. Scary as the negative growth is, it was not entirely unexpected, even though it is worse than what most analysts predicted. The general consensus favoured a marginal positive growth for December. But, and of course in hindsight, it seems right to argue that given the sharpness of the slowdown we ought to have been ready for this. Remember that the period between October and December saw the worst phase of the credit crunch, and things have reportedly improved in January. Also, the stimulus packages announced by the government are unlikely to have kicked in by December—some of the positives of that package may be seen in January and further down in 2009. So, on the whole, it is quite likely that December may have been the worst for industry.
A breakdown of the numbers though does show some cause for concern. The sharpest slowdown, of minus 12.8%, came in consumer durables—the fate of consumer non-durables was also negative, at minus 0.1%. The fact that consumer durables showed such a sharp slide suggests that firms cut back on production to clear up accumulated inventories. This is clear evidence of a massive consumption squeeze, some of which may have been brought on by the looming prospects of pay cuts and unemployment for a sizeable section of consumers. It is impossible not to mention the interest rate regime, which is in many ways responsible for the exacerbated slowdown that we face. The failure of RBI to cut rates sufficiently has meant dampened investor and consumer confidence. The consumer durables sector has borne the brunt of consumers shying away from taking loans at very high rates in difficult times. Needless to say, manufacturing has also taken a hit on account of the interest rate regime, which continues to be out of sync with global and domestic realities. Perhaps the silver lining in all the dismal numbers surrounding the economy is the steadily falling rate of inflation—it is now down to 4.3%. The latest figure is for January 31, which would have only incorporated the first-round effect of the cut in fuel prices. Inflation will fall further, creating more room for rate cuts. RBI must respond soon if the economy is to avoid a worse-than-possible 2009-10. An insufficient response means we may end up short.
The Financial Express, Feb 13, 2009, Page 6
The minus 2% growth in the index of industrial production (IIP) for December 2008 is the lowest on record since 1993, when the index was first compiled. Scary as the negative growth is, it was not entirely unexpected, even though it is worse than what most analysts predicted. The general consensus favoured a marginal positive growth for December. But, and of course in hindsight, it seems right to argue that given the sharpness of the slowdown we ought to have been ready for this. Remember that the period between October and December saw the worst phase of the credit crunch, and things have reportedly improved in January. Also, the stimulus packages announced by the government are unlikely to have kicked in by December—some of the positives of that package may be seen in January and further down in 2009. So, on the whole, it is quite likely that December may have been the worst for industry.
A breakdown of the numbers though does show some cause for concern. The sharpest slowdown, of minus 12.8%, came in consumer durables—the fate of consumer non-durables was also negative, at minus 0.1%. The fact that consumer durables showed such a sharp slide suggests that firms cut back on production to clear up accumulated inventories. This is clear evidence of a massive consumption squeeze, some of which may have been brought on by the looming prospects of pay cuts and unemployment for a sizeable section of consumers. It is impossible not to mention the interest rate regime, which is in many ways responsible for the exacerbated slowdown that we face. The failure of RBI to cut rates sufficiently has meant dampened investor and consumer confidence. The consumer durables sector has borne the brunt of consumers shying away from taking loans at very high rates in difficult times. Needless to say, manufacturing has also taken a hit on account of the interest rate regime, which continues to be out of sync with global and domestic realities. Perhaps the silver lining in all the dismal numbers surrounding the economy is the steadily falling rate of inflation—it is now down to 4.3%. The latest figure is for January 31, which would have only incorporated the first-round effect of the cut in fuel prices. Inflation will fall further, creating more room for rate cuts. RBI must respond soon if the economy is to avoid a worse-than-possible 2009-10. An insufficient response means we may end up short.
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