Some of the economic data that has come out since Friday on wholesale and retail inflation, industrial production, trade figures, etc., has been confusing and reflects a picture of an economy that is sputtering along even after four months since Prime Minister Narendra Modi came to power on the formidable plank of development. But one wonders how far these figures can be taken as reliable yardsticks of the health of the economy.
They certainly are important to the RBI when deciding its credit policy. While the consumer price index remains high across several segments besides food, as RBI governor Raghuram Rajan pointed out on Monday, the WPI, or wholesale inflation, figures showed a healthy drop from a high of 5.18 per cent in July to a five-year low of 3.7 per cent in August. They were announced a few hours after Dr Rajan implied that he was not likely to reduce interest rates, though he did say that they need not wait for CPI figures to go very low. The RBI’s focus is on the CPI because it affects the people. Even while some food items have gone down, sectors like education, health, housing, etc., are still roiling the household budget. It is not without reason that Dr Rajan told the businessmen at the Ficci/IBA meeting in Mumbai on Monday to bring down their prices and then he would bring down interest rates.
They had asked him when he would bring down interest rates, and he almost waged a bet that there would be no consensus among them on bringing down prices. With the IIP figures at 0.5 per cent from 2.6 per cent in July, a dismal low with manufacturing still not picking up, India Inc. feels that interest rates, a dampener to investment, need to come down. But the RBI is not convinced in this constant tussle between inflation and growth. On the trade front, exports are down and imports are up, which is a source of concern. These worrying figures, however, belie people’s sentiment, which is still one of hope.
There are sectors of the economy that are doing well, like the services sector and e-commerce. Since job creation is the most desired objective and entrepreneurs, especially the small and medium ones, were looking for a change in business environment, perhaps the Modi government should tackle problems at the grassroots levels. There are a lot of businesses that can take off if archaic, burdensome laws and permissions are removed. The young entrepreneurs are the backbone of the economy and their voices must be heard even as the PM is focused on bringing in administrative reforms and putting new structures in place.
