Focus on broader trends instead of ‘green shoots’

Last Tuesday, a confident finance minister said ‘green shoots’ were visible at last and predicted that the country’s stagnant economy would now see a turnaround. Nirmala Sitharaman’s confidence was based on seven ‘green shoots’ that included higher foreign direct investment  (FDI) inflows and better GST collections. She also mentioned improved foreign portfolio inflows and industrial growth in November, the purchasing managers’ index (PMI) for January, higher foreign exchange reserves and a resurgent stock market. Ironically, the next day, the National Statistical Office (NSO) released figures showing the index of industrial production (IIP) shrank 0.3% in December from a 1.8% expansion a month ago, while retail inflation shot up to a 68-month high to 7.59% in January.

These IIP and retail inflation figures show the near-term prospects for the economy are not good. In fact the NSO has scaled down its growth estimates for India at a 11-year low of 5% for the current financial year. Other factors hitting the near-term prospects is the continuing lockdown in China, which is facing the coronavirus pandemic. Analysts point out that India’s trade with China has expanded 18-fold since the SARS outbreak in 2002 to $87 billion. With China’s industry in shutdown, India’s auto, electronics and pharmaceutical industries are likely to be badly hit for intermediate supplies.

The takeaway from such contradictory and volatile data is the Centre should not clutch at straws and ‘green shoots’, and rather look at broader trends before holding out good tidings. Both the global and domestic economies are facing unpredictable and short-term crises. IIP growth rising by 1.8% in November last cannot be used as clinching evidence of a rebound. We have to look at broader, long-term indicators, and these are not yet suggesting a turnaround. The economy seems to be still stuck in a pincer of retail inflation from rising farm produce prices because of shortage of supply of crucial daily-use items such as onions and garlic, and a lack of consumption demand slowing industrial production. It is these areas the government needs to focus on.