There seems to be no end to gloomy news on the Indian economic front. Despite a marginal decline in headline inflation, based on monthly wholesale price index, from 7.81 per cent in September to 7.45 in October, there is no let-up in retail inflation, which has accelerated to an 11-month high, adding to growing tensions between the government and the Reserve Bank of India (RBI). Earlier, Prime Minister Manmohan Singh had favoured pitching for higher growth rather than concentrating on inflation and when the RBI last opted for controlling inflation there were rumblings in the PMO. With this bleak picture in the background has come news of the industrial output having fallen in September over the same period last year by 0.4 per cent after a relatively significant rise of 2.3 per cent the previous year. Manufacturing, which accounts for 76 per cent of industrial output, recorded a fall of 1.5 per cent in the same period.
Retail inflation, measured by the Consumer Price Index, rose to 9.75 per cent in October from 9.73 per cent in September, reflecting continuous rise in prices of sugar, edible oils and other food items. High inflation has forced the RBI to keep interest rates high, crimping investment and consumer spending. The bank had hinted at a rate cut in its January policy review but going by the trends that may not happen.
Dismal trade data on Monday and a surprise contraction in industrial production dashed hopes that the economy was regaining traction, and will likely heap more pressure on the government to boost growth by fast-tracking stalled reforms. It is also likely to bolster calls from the government and business leaders for the central bank to cut interest rates. The RBI, which has so far rejected those calls, must stick to its stand as prices are still rising too fast to risk loosening policy. The fact is that while the government may find it convenient to blame the RBI, the government itself has much to answer for. The inertia that has set in gives little hope that there would be anything but tokenism in the run-up to the general elections.