Next government needs to push up growth and create jobs
Regardless of whichever party comes to power, one thing, however, appears certain that the next government faces that the daunting task of pushing growth, cooling prices and spinning jobs, without losing much time.comment Updated: Apr 21, 2014 08:30 IST
Just when the government was hoping that it was beginning to get a firm grip over prices, the inflation genie has reared its head again. High vegetable prices and costlier staples such as rice pushed India’s wholesale inflation to a three-month high of 5.70% in March, while retail inflation quickened to 8.31% during the month. High inflation means the Reserve Bank of India (RBI), which will present its credit policy review in June, could hesitate to cut interest rates, a step needed to boost economic growth. At 9.9% wholesale food inflation galloped close to the worrisome double-digit mark as wholesale inflation climbed from February’s 4.68%. Likewise, retail food inflation rose to 9.10% in March, pushing the overall consumer price inflation from 8.03% in the previous month.
The Indian economy has been caught in a tug-of-war between rising prices and sliding growth, a string of recent data has showed. Industrial output fell by 1.9% in February to a nine-month low, trade deficit widened to a five-month high of $10.5 billion while exports fell for a second consecutive month in March, two sets of data released last week showed. Capital goods output — a proxy for investment activity — contracted 17.4% during the month, mirroring how companies aren’t adding capacity lines hit by weak demand, high loan rates and costly raw material. India’s merchandise exports fell 3.15% in March — the second contraction in successive months — as outward shipments for 2013-14 were valued at $312 billion, falling short of the target of $325 billion.
The spectre of a failed monsoon rain because of a probable El Nino looms large over the economy, which could push up food prices in the coming months. Analysts expect inflation to hover at 8.0-8.5% in the coming months, and hence, the RBI to keep rates on hold till temporary shocks and disturbances clear out and the underlying inflation momentum becomes evident. International investors and credit rating agencies are keeping a close eye on how the next government lifts the policy freeze to get the economy going. In each of these annotations the phraseology is similar which state that whether the economy can return to a higher sustainable growth path or whether it remains stuck at current levels it will become clearer after the new government assumes office. Regardless of whichever party comes to power, one thing, however, appears certain that the next government faces that the daunting task of pushing growth, cooling prices and spinning jobs, without losing much time.