Tags:
Journalism of Courage
The index of industrial production IIP saw a shocking and sudden decline in output in October. On a year-on-year basis,industrial production fell by more than 5 per cent. The fall is an extremely unusual phenomenon as most emerging economies tend to see dips in growth rates rather than output itself. The first question to be asked before going further with analysing this data is whether the data is correct. As Commerce Secretary Rahul Khullar recently admitted,the export data,which showed very high export figures and had appeared puzzling to most observers,was miscalculated. This is bad enough in normal times but is extremely dangerous in difficult times,as at present.
If the IIP numbers are indeed correct,this could be one of the most difficult times in Indian macroeconomic policy-making. Inflationary expectations of households are as high as 12 per cent for the coming year. These combined with low growth could yield stagflation. In such a situation,with high inflationary expectations,it is no longer possible for monetary policy easing to give growth a push. At the same time,output is being hit due to the external environment,policy uncertainty,difficulties related to approvals and corruption scandals. Fiscal policy is already very lax,with very little scope for expansionary fiscal policy. The only option for the government is to provide a good policy environment and to improve the framework for infrastructure,environmental and urban development policies. At present,unemployment of the urban,skilled and educated labour force is not a serious issue. With industrial and services growth falling,a large number of young people coming out of educational institutions and not finding jobs could become the next big policy challenge.
