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Growth will have to be tapped from within
Mon, 17 Dec Pre-Open

The index of industrial production (IIP) grew by 8.2% annually in October 2012. This is a sharp increase, especially when compared to output of a negative 0.7% (revised figure) of the preceding month i.e. September 2012. With the figure for the month of October being well above expectations, India's Finance Minister recently stated that this jump in production numbers reflected the emergence of 'green shoots' in the economy.

India's chief economic advisor Raghuram Rajan expressed his views on the IIP numbers. He is of the view that while the economic growth seems to be stabilizing and that the government's efforts would help strengthen the recovery, it may not be right to conclude anything from the latest released IIP data. Mr. Rajan also added that one should not be influenced by the figure considering factors like base effect (the festive season had a role to play towards the same) play a key role towards calculation of IIP numbers. Instead, one could view it from a point of stabilization.

Further, Mr. Rajan also discussed the importance and criticality of the government's attempts to revive and strengthen the economy. While the Indian economy may be influenced by growth rates of the developed nations, but growth (if any) would have to come by tapping domestic sources. With the latter, Mr. Rajan was referring to the many reforms announced by the government in recent times.

Interest rates still remain a key factor...

A key factor towards strong economic recovery and towards reviving investment sentiments would be lowering of interest rates. Following the release of the IIP numbers, there are already reports of the high likelihood of a possible reduction in interest rates by the RBI on account of the same. However, it remains to be seen given that the key concern of the RBI has been inflation levels being above the comfort zone. While WPI inflation for the month of November 2012 came in at 7.24% as compared to 9.46% during the corresponding month last year, retail inflation numbers - which were announced a few days ago - came in at 9.9%, a figure higher by about 0.24% as compared to the previous month.

All eyes on the RBI governor as the Reserve Bank of India (RBI) mid-quarter monetary policy review is due on December 18.

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