IIP, INFLATION and BASE YEAR

Last week many would have read or listen in news that IIP index had bettered than expectations to increase at 17.6% in April. Creating a 20- Year high achieved due to increase in consumer demand, revival in exports and higher infrastructure spending. This 17.6% (General IIP) higher is as compared to the level in the month of April 2009. Another important thing is this growth (Year on Year) is much higher compared to 2009-10 (1.1%) and 2008-09 (6.2%). When it comes to manufacturing sector alone then it had a tremendous growth in April 2010 of 19.4% over the 0.4 % in April 2009-10 and 6.7% in April 2008-09.


Another Important thing appeared in the news is Food Inflation again raised marginally to 16.74% in the week ended May 29 marking second consecutive week rise. The annual rate of inflation (calculated on point to point basis) of Primary Articles stood at 17.21 percent (Provisional) for the week ended 29/05/2010 over 30/05/2009. The annual rate of inflation (calculated on point to point basis) of Fuel, Power, Light and Lubricants stood at 14.23 percent (Provisional) for the week ended 29/05/2010 (over 30/05/2009) (Source: Economic Affairs).


In March, CSO announced that they will follow the 2004-05 as the base year for price index and they also said they will have 250 new items in WPI to provide more realistic picture of price rise and its impact on people. They also said that a new wholesale price-based index for measuring inflation would be rolled out from May 14. But the fact and reality is till date we don’t find new WPI with the base year 2004-05, we are still following 1993-94 as a base year.


There are 2 questions which arise in my mind. 1. Since we are calculating the WPI with the base year 1993-94, it is really a big question whether this inflation rate shows the real picture of the Prices and its impact on People. 2. Why CSO is unable to adopt the new price index as they said from May 14? The base year 1993-94, is not only for Inflation index but the same is used for IIP also, until the new base year comes into existence it is difficult to say whether these data’s gives us the real picture of the economy.

INDIA, IMF & EXTERNAL DEBT

         Few days back one of my friends and former colleague (Mr. K. Shreedhar) was telling his review over my blog. At that time we were also discussing on India’s growth story. Next day he had sent me a link with the headline that “No impact on Fisc as India lends to IMF” - FE (Full article link: http://www.financialexpress.com/news/No-impact-on-fisc-as-India-lends-to-IMF/630299/ ) and said the story has just begun. The article states that “For India two decades after liberalisation, one of the biggest (and relatively unsung) shifts has been that she has turned into a lender country to the IMF.” No Doubt, this is one of the most unsung glories. When I read this news I was happy initially, but, suddenly this made me to think whether our Foreign Debt has been reduced; if so, to what extent? etc… So I have done some research to find out certain things.
         
          Recently many would have read in news papers that “India’s External Debt’s rises by 11.9% at end of December 2009”. Many of the People might think what is the relationship between External Debt and India’s lending money to IMF. There is a relationship between the two; in 1989-1991 we went to IMF for loan because of the external debt. I felt like seeing the GDP ratio of External Debt from 1990-91 where I found that our GDP ratio to External debt has declined but not to a great extent. In the Year 1990-91 our external debt to GDP was 28.7% while in the year 2008-09 (Revised Estimates - RBI) is 21.4% which is 25.44% decline in the Foreign Debt over 17 years.


           Many people may think that the 21.4% is higher but the fact is we are better than many nations. Among the BRICS Nations India’s external debt is third lowest after South Africa (16%) and Brazil (19%). China’s External Debt is much higher than India (41%). Compared to developed nations we are much better, the following list shows the % of GDP of developed nations (Source: Wikipedia)


Country                  % of GDP


United States             94%
United Kingdom      416%
Germany                 155%
France                    188%
Netherlands             470%
Spain                      165%
Italy                        101%
Ireland                  1004%
Japan                       42%


              Then what is the one of the India’s real problem now. The most worrying part of INDIA is it's Fiscal Deficit, which is  around 78% of it's GDP.

India's economy rebounds with rapid growth!!!!!!

Yesterday fourth quarter results have been announced and many of the People would have been surprised on hearing the news "India's economy rebounds with rapid growth rate of 8.6%" "8.6% surge in Q4 boosts '09-10 GDP growth to 7.4%" - TOI "India's Q4 GDP grows at 8.6% y-o-y" - ET . Along with this they have mentioned that Manufacturing sector helps to drive quarterly growth rate to 8.6%. The farm sector has grown by 0.7 per cent, manufacturing grew by 16.3, mining sector grew by 14 per cent and service sector grew by 8.4 per cent in the fourth quarter of the last fiscal year (i.e. 2009-10). This 8.6% growth in the Fourth Quarter helps the economy to grow to 7.4% in entire Fiscal Year (2009-10). The first three quarters of the last fiscal (2009-10) grew at 6.1 per cent in Q1, 7.9 per cent Q2 and sluggish of 6 per cent in Q3. Yesterday the Q3 estimate is again revised to 6.5 percent from 6 per cent.

Now let us put this growth story aside for sometime. Let us look at the inflation story which is still worrysome despite of fall in Inflation rate. India's food inflation rate eased slightly to 16.23 per cent on May 15 from 16.49 per cent in the previous week. Reserve Bank of India (RBI) Governor Mr. Duvvuri Subbarao said on Tuesday that "Inflation is not at peak level. It is still higher than we would like it. We would take inflation concerns along with growth (while formulating monetary policy)" India's annual wholesale inflation was at 9.59 per cent in April, coming off from a 16-month high of 10 per cent in February. (source: netindia.in).

Despite of 7.4% growth rate we still have few questions which need some answers. Whether Growth Rate implies improve in Standard of Living of the People? When the inflation rate will become more stable? How a comman man can be benefitted from the Growth rate? Is governments inclusive growth is a reality or myth? It is not at all easy to answer any of this questions. These are the basic questions which goes in the mind of every comman man irrespective of his knowledge in economics. But it is hard to provide any answer. Suddenly another question props up - Whether this growth rate will continue, if it continues then whether it can eradicate poverty to certain extent? Is there any realtionship between Growth rate and Poverty eradication? Again no answers for this question from me. Can anyone explain or give some answers for any of my questions. I would be glad to hear your views.