Silver lining

it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures. 

In the vein of International Monetary Fund, recently Prime Minister’s Economic Advisory Council has also forecasted that Indian economy is bottoming out and getting back on the growth trajectory.  The emergence of green shoots in domestic and global economy like easing out inflation, increased factory output, gold and oil price fall etc. also gives the same sentiment. While global economies are trying to make the most of current green shoots, India is not being able to, due to constantly getting crippled with acute political-paralysis having been already in throes of policy-paralysis.

March Index of Industrial Production print at 2.5% has provided some relief to a beleaguered Government and Reserve Bank of India who were constantly troubled with sluggish industrial activity and sputtering growth. Reeling under the huge pressure of massive gold and oil exports, recent steep fall in gold price and decreased crude oil price has sparked the hope that India’s forex reserve will boost leading to a declined Current Account Deficit. In addition, the most significant green shoot favoring Indian economy is its assuaging inflation. Not only wholesale Price Index lowered down to 5.6% in March from 6.2% a month earlier, Consumer Price Index (CPI) has also dropped for the first time in six months, though it remained in two digits at 10.4% in March against 10.9% in Feb. Core inflation has fallen under the RBI’s tolerance limit being at 3.4% and food inflation has also somewhat alleviated. However, RBI is still cautious and refrained from adopting eased monetary stance in its Monetary Policy released back on 3^rd May 13. Going against the expectations of industry and stock market, RBI cut the key interest rate by just 0.25% to 7.25% and kept the liquidity enhancing cash reserve requirement untouched.

RBI not relenting upon policy rates is justified as India’s data computation system is not robust enough to produce micro-economic data and doesn’t give the clear picture of how small industries are faring at any given time. Therefore, it would be pertinent to wait for few more months in order to let the green shoots keep shining and solidify. It must also be noted that it is not economic constraints but escalating political-logjam that has bound the RBI to shower enthuse in the market. In the words of RBI-Chief D. Subbarao “the effectiveness of monetary policy in bringing down inflation pressures and anchoring inflation expectations could be undermined by supply constraints in the economy, particularly in the food and infrastructure sectors. Without policy efforts to unlock the tightening supply constraints and bring enduring improvements in productivity and competitiveness, growth could weaken even further and inflationary strains could re-emerge.”

Considering a Government dogged by scandals and corruption and an opposition hell-bent to spew venom against former, it appears that India has landed into a permanent crisis. It’s unfortunate that just because of petty political brinkmanship resulting into precluded parliamentary proceedings hindered the discussion on many important policy-decisions. Land acquisition bill, Foreign Direct Investment in insurance bill etc have been languishing from one session to another without getting tabled.

Economic recovery indicators are surely palpable. Having been in the throes of slow growth for long, this is exactly the time that India gears up to push reform agendas ahead and make the most of what global and domestic buoyant sentiments are offering. It must understand that economic slowdown is not as gruesome as the political slowdown resulting into policy stalemate. Expecting prudence on the part of Govt. and opposition at this time when general elections are round the corner is definitely like nurturing a false hope. Nothing is going to be done by these revered parliamentarians, it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures.