Collateral Damage

The Indian economy is hit by the global meltdown, the decoupling theory proving elusive.Industrial output, which had been slowing down for some time, has now recorded an absolute decline with the index of industrial production for October down 0.4% from the same month in 2007. This is the first time in 15 years that year-on-year growth has been negative for any month and is a clear sign of the global meltdown affecting India in much worse form than had been anticipated. The last time the IIP registered Y-O-Y negative growth for a month was in April 1993. The consensus among analysts and economists is that the trend is likely to continue at least until November ‘09. What’s more, nobody is sure that the government’s stimulus package announced in bits and pieces since around the end of November will be able to trigger a significant recovery. Given the fact that industry accounts for about one-fifth of GDP, even scaled down GDP growth projections of 7% or more now seem ambitious. Suresh Tendulkar, chairman of the PM’s economic council, admitted that the figures were worse than expected and would necessitate revisiting the growth projection. RBI governor D Subbarao had already said that the central bank’s current projection of 7.5% to 8% growth was doubtful. Manufacturing worst-hit, recorded negative growth of 1.2% in Oct ’08 compared to 13.8% in Oct ’07. Capital goods down to 3.1% growth in Oct ’08 (20.9% in Oct ’07). Consumer goods slump to -3% from 9% Globally, India still fared better in Oct than Brazil (-0.8), Russia (-0.6%) and the US (-4.1% ). But it lagged far behind China’s 8.2% growth