That India's industrial production - and consequently its magnificent growth rate - would fall was known to all. So, while the index of industrial production (IIP) crashing to its two-year low of 3.3% comes as no surprise, its cause is a shock. This fall has been driven by a contraction in capital goods. This confounding statistic of negative growth (-15.2% in July) from a rise of 38.2% in the previous month is worrying because it is this factor that catalyses future investments and jobs.
A lot of blame for this will fall on RBI governor D Subbarao for increasing policy rates eleven times since March 2010, ostensibly to control inflation. But the confines of monetary policy don't offer much room for manoeuvre and have proved ineffective before global commodity prices, particularly food and fuel.
Subbarao may try hard and raise rates again on Friday, but the solution to India's inflation doesn't lie with him but with the ministries of finance and agriculture. On food inflation that has remained high for a disturbingly long period, a World Bank report has suggested four policy options - foodgrain stock management, increased productivity, building safety nets and managing macroeconomic risks - none of them monetary.
Interest rate hikes cannot fix structural issues. Food inflation, for instance, is being driven not by wheat or rice but by fruits, vegetables and milk. This is not surprising: with prosperity, people move to richer diets, causing structural changes. How can interest rates change this?
As evidence stands, all that monetary policy has done is strangulate the India growth story - without being able to control a persistently high inflation. Our economic managers need to stop saying "things will get better over the next few months" and instead concentrate on how to deal with structural changes. What we are witnessing is really a chronicle of a slowdown foretold; what we need is its reversal.