It's been quite some time since the Indian economy has been facing a rough weather. The prospects of the economy seem to be clouded by slowdown in the GDP, high fiscal deficit, high inflation and depreciating currency. The recently released index of industrial production (IIP) data has further added to the economic concerns. This is the third month when the industrial production has shown contraction. The industrial output has contracted by 0.6% in the month of December 2013. For the first nine months of FY14, the industrial output has contracted by 0.1%. The number when seen alone may not raise much concern. However, one should keep in mind that the same grew by 0.7% in the corresponding period last year. The main culprits for the slowdown have been manufacturing and mining sector.
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Besides low demand, poor investment climate, delays in projects, environmental issues and policy bottlenecks etc are some of the key reasons for this slowdown. On the positive side, retail inflation for the month of January 2014 has eased to two year low of 8.79%. Will this make RBI cut rates as demanded by business and industry chambers? If the recent policy decisions are anything to go by, RBI seems to be targeting inflation more than growth. With a stated objective to bring down inflation further, the possibility of rate hikes during the calendar year 2014 cannot be ruled out.
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