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Bikky Khosla | 18 Mar, 2014
A new round of economic data has been churned out last week, showing industrial production growth for January returning to the positive zone after three months of decline in a row, February retail inflation and wholesale inflation easing and exports falling for the first time in eight months in February. This data set is worth closely watching. The RBI's forthcoming monetary policy is scheduled on April 1, and more importantly, we are just weeks away from national elections.

The downward trend in inflation is a good piece of news. In February, retail inflation slowed to a sharper-than-expected 8.10 percent as compared to 8.79 percent in the previous month while wholesale inflation -- driven by fall in food prices -- fell to a nine-month low of 4.68 percent as compared to 5.05 percent in January. I think this development offers an opportunity to the central bank to lighten the interest rate burden for the Indian industry which has already been affected by a series of rate hikes recently.

Some experts view this in a different way, however. According to rating agency Care, the RBI may hold rates to ensure continuation in decline in inflation before starting to push growth. Crisil, another rating entity, is of the opinion that rates may be held as prices of certain food products are still on the rise. Some analysts also point out that the inflation risk is still high and that the recent downward trend of food prices may reverse soon due to the damage to crops done by the recent hailstorms and heavy rains.

The growth in January industrial output is satisfactory in the sense that it happened after three straight months of contraction, but the anemic 0.1 percent growth is still grim. In addition, what is more worrying is that the output of the manufacturing sector declined for the fourth consecutive month. Within the sector, consumer durables went down by 8.3 percent while the capital goods sector shrank by 4.2 percent. Such level of industrial growth is surely not enough to push economic growth even to 4.9 percent.

Merchandise exports fell 3.67 percent in February to USD 25.68 billion. With this, our total exports in the first 11 months of the current fiscal amount to $282.8 billion, leaving little doubt now that we will miss the trade ministry's $325 billion but it is very likely that we will be able to beat last financial year's $300 billion achievement. This level of performance by the sector and the role it has played in the last few months in bringing down the current account deficit is really praiseworthy.

No doubt, concerns are there, but overall it seems the economy will do better in the coming months. The general elections will be a major factor, however. If a stable government is formed at the centre and if it works strategically to build on this positive momentum, the economy will certainly take a turn for the better in the coming fiscal year.