India’s economy may not be on a roll but it’s certainly on the mend, having shaken off the debilitating hangover of demonetisation. A combo of high industrial production figures at 7.8 per cent and inflation at a four-month low spells an economy poised for further growth. It ensures India’s place as the world’s fastest growing economy. Manufacturing’s significant contribution and the good demand for consumer/capital goods provided the heady cocktail for growth. This was supported by the revival in job creation figures the labour ministry cited Wednesday, which means more purchasing power in the hands of more people. But the jobs created haven’t yet reached the numbers promised by Prime Minister Narendra Modi, so hopefully he’s working towards this.
The ball is now in the private sector’s court: it must start investing more robustly than before. The global economy is also on a revival path, with America taking the lead. Our exporters must take advantage of this. The usual demand for the RBI to lower interest rates in its credit policy announcement due in early April seems highly unlikely and unnecessary. However, the RBI must keep interest rates stable so industry knows where it stands as far as borrowing is concerned. While interest rates are a minimal constituent of the cost of manufacturing, it does seem to have an effect on the business psyche, going by the usual clamour for a rate cut. It would be unfair to discount this demand entirely, as interest rates in India are among the highest in emerging markets. India’s major competitors are also the emerging markets, who therefore have an edge with cheaper funds.
