Economy moving in the right direction

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Bikky Khosla | 18 Nov, 2014
We've had some good news lately: inflation eased sharply in October; industrial output for September saw a better-than-expected growth; the RBI has proposed to allow small banks to have a pan-India presence; and finally, India and the US have reached consensus on the WTO food security row. I think, these developments, combined with the government's continuous efforts and farsightedness as reflected in its talks about scrapping the Planning Commission and more recently, the decision to deregulate diesel prices, will convert to a more comprehensive economic revival in the coming months.

The fall in retail inflation -- an index which is watched closely by the RBI -- to 5.5%, along with the fall in wholesale inflation to 1.7%, is worth celebrating as it is far better than the RBI's target of 8% by January 2015. With this, naturally the clamor for a rate cut has intensified. I hope the central bank, in its policy review next month, will take into account the poor housing and consumer goods demand and softening investment. In addition, some experts have already lowered their GDP forecasts for 2014-15. A rate cut now will help reverse these trends.

As far as the IIP figures for September are concerned, the 2.5% growth rate is not significant, but still it is the fastest in last three months. Another positive aspect is that this growth is driven by higher output of the manufacturing sector. 15 out of the 22 industry groups in the sector have shown positive growth during the month. Capital, basic and intermediate goods also showed healthy growth. However, production of consumer durables, an indicator of demand, fell 11.3%. Drop in car sales, even during the festive session, is another area of concern.

Meanwhile, it has been reported that the RBI is considering allowing small banks to have a pan-India network. The move is in line with the central bank's efforts to start a receivable finances system to support MSMEs, which need special attention. Needless to say, this is a welcome development considering lack of availability and high rates of finance. Credit crunch is one of the major problems addressing which properly could make a big difference to the fortunes of the Indian MSME sector.

Finally, the India-US agreement on the WTO row, the finer details of which are still unclear, seems a welcome development. It sounds great that our government has not compromised the interest of farmers and at the same time the Trade Facilitation Agreement, which seeks to make global trade faster, easier and cheaper, is likely to be a reality soon. If implemented, it will boost global trade in a big way, eliminating delays, uncertainties and high transaction costs in international trade to a great extent.

I invite your opinions.