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Slowdown blues here again

Corruption scandals and food prices have compounded India’s troubles as it eyes China-style growth. HT reports.

business Updated: Jan 15, 2011 02:01 IST
HT Correspondent
HT Correspondent
Hindustan Times

Just when things seemed to be easing and India was raring to go in the high-growth league, the heat is on again.

Food inflation has remained stubbornly high in the past few weeks, factory output growth has plunged to an 18-month low and the government’s macro-economic managers are grappling for options to sustain growth while keeping prices under check.

As if natural economic woes are not enough, we have seen the spectre of corruption scandals hurting governance and politics — and in turn, policy-making.

Last year, India was rocked by five major scams—four of these in the last four months.

India has slipped to 87th spot in Transparency International's latest ranking of nations based on the level of corruption, with the global watchdog asserting that perceptions about corruption in the country increased in the wake of the scam-tainted Commonwealth Games.

According to Global Financial Integrity, Washington-based research group, India is losing about $16 billion (R72,496 crore) a year to outflows related to tax avoidance by wealthy individuals and companies, plus corruption and bribery.

The outlook isn’t quite rosy.

“I see a hardening of raw material prices and rising cost of capital as key factors impacting the growth of manufacturing in coming months. Despite stimulus measures, some of the key sectors have not shown adequate growth in the last few months,” said Amit Mitra, secretary-general of industry chamber Ficci.

The runaway price line has upset the government’s plans of implementing a carefully calibrated exit plan from its fiscal stimulus package in this year’s budget, adding to a series of woes the government is beset with (See graphic)

Originally, the government had planned a two percentage point hike from 10 to 12 % in central excise duty 90% of the manufactured goods in this year’s budget.

"The plan was to fully withdraw the stimulus when the recovery in private demand — both consumption and investment — is sufficiently robust. While these have been achieved, high prices are a key concern. This may force the government to push back the planned increase in excise duty,” the official said.

With prices higher and money costlier, demand — the engine that drives growth in a market economy, is certainly under squeeze. Can India aspire to sustained 9% GDP growth matching China in such a context? That is the big question of the year.

First Published: Jan 14, 2011 20:42 IST