Economic data deceive to dispirit

Economic data deceive to dispirit

The data are dispiriting. The good news is that they are deceptively dispiriting. Consumer prices for May show inflation at the lowest level since 2001, at 2.18%. A good harvest, in combination with the lingering effects of the disruption of rural financial linkages by demonetisation, has pushed food price changes into negative territory. This, naturally, has caused distress on the farm. Capital goods production has shrunk in April, as compared to the year-ago level. Basic and intermediate production, too, dragged. All manufacturing output has grown by only 3.1% in April, marginally faster than the 2.7% growth of March. If prices and industrial data alone mattered, we are staring at a picture of stagnation. Fortunately, there are other indicators that tell a positive story.
Agricultural output is bound to register a healthy growth, when the numbers are totted up. The fall in prices reflect, in part, bumper harvests in many commodities. That apart, freight movement and fuel consumption are definitely on the rise, signalling increased economic activity. The Railways’ earnings from moving passengers and goods are up more than 9% in May, as compared to May 2016. The total cargo handled at major ports was up 5.56% in May, in volume terms.
Growth in container movement was even greater. Fuel consumption in the economy went up by 5.4% in May. Demand for diesel, the bulk fuel, went up 8%, while the demand for petrol rose 15.9%. These volume growth figures have finally recovered from a demonetisation-induced slump in demand.
True, the economy is not powering ahead as it should, to generate the jobs India’s demography calls for. Nor is it faltering. What can transform this middling growth is a big push to investment, particularly, private investment.
That is hobbled by the twin-balance sheet problem: bad loans on the banks’ books and unserviceable loans weighing down India Inc. It is welcome that the government and the RBI are taking steps to tackle this. Resolution of bad loans and freeing up banks to resume lending hold the key to vigorous growth of the economy.