The last bit of economic data to emerge before a new government takes office is pretty grim, but it does not have much by way of shock value. Industrial output grew at its slowest pace since India began opening up to the world — falling from 8.5 per cent in 2007-08 to 2.4 per cent in 2008-09 — yet the severe manufacturing shrinkage in the last six months has largely been discounted. Also, factory output has declined in two successive quarters and India is now technically in a zone of industrial recession. That again does not seem too bad against the horror stories emerging from the rest of export-driven Asia. Prime Minister Manmohan Singh, whose credentials as an economist have never been in doubt, reckons the Indian economy grew 6.5 per cent in a year when much of the world went into recession. The inheritance of loss that is the economy today is a manageable one.
Which makes the sightings of recovery an industry in itself. It is seen in the upward movement in car sales, in the consumer goods purchases in the countryside, and in the good showing by the cement and steel industries. Once trade revives, the argument runs, India should be among the first to climb out of the trough, given its strong domestic demand. Trade data, however, offers little by way of hope. India’s exports shrank 30 per cent in March and preliminary indications are that they will shrink another 33 per cent in April. There’s no light at the end of this tunnel.
All the more reason the management of the economy, at least those parts of it that are not impervious to government policy, is not taken hostage by the immediate political exigencies of government formation. Budget-making will have to begin as soon as oaths of office are administered. The exercise this time will be trickier than usual: the fiscal stimulus undertaken thus far may need to be recalibrated for efficacy. Alongside, there will be market expectations that the government will lay out a medium-term economic agenda, including a roadmap of reforms. Naturally, any vision statement will be informed by the global lessons of the year gone by. The manifestos of parties headed for a hung House are understandably wary of taking positions on the scope and pace of economic liberalisation. This diffidence will have to be shed as soon as the coalition arithmetic falls into place.