Growing signs of a deeper slowdown

economic prospects continue to appear bleak with the growth rate in the dse-ecri indian leading index, a predictor of the pulse of the economy, dropping for the sixth consecutive month to -2.2 per cent in august from 8.5 per cent in may and 0.4 per cent in july. this downward trend in the growth rate indicates a deeper slowdown. the level of the leading index also fell to 151.9 in august from 152.1 in july. the trend in the level and the growth rate of the leading index suggests that a recovery is not yet in sight, at least until the second quarter of calendar year 2002. the level of the dse-ecri indian coincident index, a composite index of output, income, employment and sales and a gauge of current economic conditions, as well as its growth rate ticked slightly up in june but growth remained subdued and much below earlier highs. in the backdrop of a dismal growth rate in gdp of 5.2 per cent in fiscal year 2000-01 and an even lower growth of 4.4 per cent in the first quarter of 2001-02, gdp is expected to grow by around five per cent in the current fiscal year. growth in the industrial production index also dropped to 1.6 per cent in september from 2.7 per cent in august and 5.9 per cent in the same period last year. growth in the first half of the fiscal year (april-september) was 2.3 per cent down from 5.7 per cent posted a year earlier. in the use-based classification, a worrying aspect is the drop in capital goods output by 11.6 per cent in september and by 8.6 per cent in april-september from a year earlier. dim economic prospects are influenced, amongst other factors, by the recent decline in the profitability of several companies that is reinforcing and prolonging the slowdown. according to a recent study by the economic times, 161 companies that account for 80 per cent of market capitalisation on the bombay stock exchange, experienced a 1 per cent fall in the year-on-year net profit in the quarter ending september. while a few companies, especially from the automobile and cement sectors, performed well, many were severely hit by the slowdown. on the global front, while the indian economy is less export-dependent than most, the recession, worldover, is likely to hurt indian growth. indian exports fell in september by 8.6 per cent from a year earlier while cumulative exports in the first half of the current fiscal year were down 2 per cent from the same period in 2000-01. in particular, exports of textiles and jewellery are likely to be severely hit by the fall in overseas demand. further, the deepening downturn in the information technology sector has resulted in a decline in the it software and services exports growth rate to 20 per cent in the second quarter of 2001-02 against 37 per cent in the same period a year ago. in the first half of the year, the growth rate slowed down to 33 per cent compared to 63 per cent in the corresponding period last year. responding to the slowdown, the rbi has recently relaxed monetary policy by reducing the bank rate and the cash reserve ratio in order to increase the liquidity in the banking system. another encouraging development is the government's implementation of the divestment programme by the strategic sale of two of its smaller companies. the impact of these initiatives and the expected increase in agricultural output are, however, likely to affect growth only with a lag. (pami dua is a professor at the delhi school of economics while anirvan banerji is the director of research at the economic cycle research institute, new york.)

Growing signs of a deeper slowdown

Economic prospects continue to appear bleak with the growth rate in the DSE-ECRI Indian Leading Index, a predictor of the pulse of the economy, dropping for the sixth consecutive month to –2.2 per cent in August from 8.5 per cent in May and 0.4 pe...

More from our Partners

Popular Categories

Hot on Web

In Case you missed it

Top Searched Companies

Latest News

Download ET APP

Follow us on

become a member