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Revealed
India's Third Giant Leap

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Is Indian economy on recovery path?
Wed, 4 Jan Pre-Open

The year 2011 will mostly be remembered with bitter after taste with regards to the development in the Indian economy. And why not? It was not just the poor struggling with rising food prices, the middle class too dealt with seven hikes in interest rates during the year. The year saw steep erosion in the investors' wealth with stock markets touching worrying lows and Indian corporates dealing with rising commodity and finance costs. Whatever little damage was left was taken care of by the rupee depreciating against the dollar in the second half.

However, the end of the year brought with it a whiff of fresh air .The manufacturing activity for the month of December touched a six month high on account of higher factory output and a jump in new orders (biggest in two years) - both from domestic and international clients. This was accompanied with other positive pointers like increase in the car sales for December and the RBI governor suggesting a reversal of stance in the monetary policy.

However, these developments are shadowed by the fact that input costs continue to remain high; something that could drag factory output again. The optimism regarding car sales could be misplaced as this could just be a pre buying spree before car makers actually go for hike in car prices in January as per their announcements.

While the skeptics may consider this as a flash in the pan, the data assumes significance against the background that for other economies including China; similar indicators seem to be suggesting a contraction. Having said that, it is indeed difficult to predict where the economy will head in 2012. While the Reserve Bank Of India (RBI) has suggested a reversal in monetary policy stance, unless the timing is known, it will be too premature to draw optimistic inferences. But more importantly, it will need the Government to muster up strong political will to adopt reforms and ramp up the infrastructure in the country for any positive trend to sustain.

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