Mixed growth signals
The Hindu Business Line, March 31, 2009, Page 8
--------------------------------------------------------------------------------
Public spending should be directed at sectors that are finding growth hard to come by.
--------------------------------------------------------------------------------
February industrial output numbers have brought both good and bad news; the good news is that some core sector drivers are witnessing a revival of sorts. Steel output for instance rose 3.6 per cent following January’s 1.2 per cent growth and after persistently falling the preceding three months. The buoyancy in cement is even more promising since the expansion of 8.82 per cent in February follows the 6-11 per cent growth in output between October 2008 and January 2009. The bad news is that the rest of the core sector does not add up to scratch, with crude oil output declining 6.2 per cent and flat growth in petroleum refinery products; coal output did expand but at half the rate of last February. Usually month-wise data may be treated with caution for their randomness but in this case, given the trends in manufacturing over the last four months, short term fluctuations are vital clues on what needs to be done.
The data reflect well on the private sector, the largest players in cement and steel, and poorly on the public sector. In the latter, the worst performer is electricity with almost no sign of growth despite the heavy emphasis of planners on, and commitments of investments for, augmenting power production. Admittedly the growth of the cement and steel sectors has been predicated on the expansion in demand in semi-urban and rural areas, much of which has been generated by public investments in infrastructure. To that extent, policymakers need to push home the advantages that accrue from effective public spending and the consequent increases in purchasing power. The stimulus that will figure in the full budget later this year must be directed at those sectors that now find growth hard to come by; benefits will surely flow, for instance, from a plan to increase public housing. The most effective way of reaping benefits of Government spending, though, is to make sure that planned projects take off and that they are completed on time. Officials have from time to time aired their views on how much to spend to stimulate demand rather than how well the money can be spent.
Stimulus programs do not come free; the price the economy pays for heavy Government borrowing — Rs 2,41,000 crore over the next six months — keep bond rates high which in turn prevent lending rates from falling, as the RBI has frequently noted. “Crowding out” private investments this way may be necessary to flag off demand but for how long?
The Hindu Business Line, March 31, 2009, Page 8
--------------------------------------------------------------------------------
Public spending should be directed at sectors that are finding growth hard to come by.
--------------------------------------------------------------------------------
February industrial output numbers have brought both good and bad news; the good news is that some core sector drivers are witnessing a revival of sorts. Steel output for instance rose 3.6 per cent following January’s 1.2 per cent growth and after persistently falling the preceding three months. The buoyancy in cement is even more promising since the expansion of 8.82 per cent in February follows the 6-11 per cent growth in output between October 2008 and January 2009. The bad news is that the rest of the core sector does not add up to scratch, with crude oil output declining 6.2 per cent and flat growth in petroleum refinery products; coal output did expand but at half the rate of last February. Usually month-wise data may be treated with caution for their randomness but in this case, given the trends in manufacturing over the last four months, short term fluctuations are vital clues on what needs to be done.
The data reflect well on the private sector, the largest players in cement and steel, and poorly on the public sector. In the latter, the worst performer is electricity with almost no sign of growth despite the heavy emphasis of planners on, and commitments of investments for, augmenting power production. Admittedly the growth of the cement and steel sectors has been predicated on the expansion in demand in semi-urban and rural areas, much of which has been generated by public investments in infrastructure. To that extent, policymakers need to push home the advantages that accrue from effective public spending and the consequent increases in purchasing power. The stimulus that will figure in the full budget later this year must be directed at those sectors that now find growth hard to come by; benefits will surely flow, for instance, from a plan to increase public housing. The most effective way of reaping benefits of Government spending, though, is to make sure that planned projects take off and that they are completed on time. Officials have from time to time aired their views on how much to spend to stimulate demand rather than how well the money can be spent.
Stimulus programs do not come free; the price the economy pays for heavy Government borrowing — Rs 2,41,000 crore over the next six months — keep bond rates high which in turn prevent lending rates from falling, as the RBI has frequently noted. “Crowding out” private investments this way may be necessary to flag off demand but for how long?
Posts
No comments:
Post a Comment