There seems to be no end to bad news on the economic front. Prices of everything that the aam aadmi uses almost every day continue to soar unabated. Food, fruits, footwear, movie tickets, household services, etc. remain in the grip of inflation. If onions alone were selling at Rs.80-90 per kilo, housewives could skimp on their use. But now even tomatoes, potatoes, lowly bananas, common variety vegetables, etc., are all selling at high prices. Life is really hard for the lower, middle and even upper-income groups with fixed monthly incomes. Reflecting the upward trajectory of food prices, the retail food inflation rose to 12.56 per cent in October, as against 11.44 per cent in the previous month. Vegetables were the main drivers of inflation in the food sector, with prices rising 41 percent last month. Supply-chain inadequacies clearly continue to bedevil this sector, thus pushing prices sky-high. Overall, the consumer price index edged past ten per cent in October, as against 9.84 per cent in September. At 10.09 per cent in October, the retail index was highest in seven months. Meanwhile, there was more bad news on the industrial front. The index of industrial production barely moved up this September, 0.5 per cent over the previous month. As against September last year, the increase is two per cent. But given that in September 2012, the index had registered a negative growth of 0.4 per cent, the two per cent growth in September this year is least impressive. With the investment climate continuing to be adverse, the sluggishness on the industrial front is not hard to imagine. In fact, the capital goods sector has shrunk 14 per cent in the last two months, for which data is available. Despite the onset of the festival season, consumer durables were slow to fly off the store shelves. Clearly, runaway inflation in food and fuel prices has left households with very little surplus to make discretionary purchases of consumer durables. High interest rates too have dampened the spirits of buyers of inessential goods. As if this were not enough, there was further bad news. The rupee was once again in reverse gear, having lost 47 paise on Tuesday to return an exchange rate of 63.71 to a dollar. Since early September, the rupee had begun to stabilise around 61-62 to a dollar. This was due to certain steps taken by the new RBI Governor, including the opening of a special window for the oil companies to source their dollars for imports of crude and a special interest rate for NRI bank deposits. Additionally, the pressure on the rupee had eased somewhat when the US Fed assured that it was not about to switch off the easy liquidity tap. The RBI has now closed the special window for oil companies and, therefore, necessarily they must now buy dollars from the open market. The resulting pressure is bound to be reflected in the value of the rupee. Two, there is again talk that the US Fed may begin to withdraw the sale of bonds to gradually reduce liquidity.
The continuing infrastructural bottlenecks and poor economic policy regime are the additional factors pushing the currency down. Even the slide on the share markets in the last few sessions has reflected the overall lack of confidence in the economy. The causes of the economic slowdown are widely known. Unfortunately, the government seems to be in no position to take even the minimum corrective steps. Short of announcing clearances of long-pending projects, it has done precious little to imbue confidence in the investment community. Political uncertainty cannot be removed by a few announcements of project clearances when conditions on the ground continue to be inhospitable. There can be no clarity on the economic front in the near future. Only a new government with a stable majority and a fresh mandate may help revive the economy. Otherwise, despite P Chidambaram’s hectoring warnings, it will be hard for the economy to grow even at five per cent this year.