Saturday, October 06, 2007

New Delhi, The great growth story may be in for a twist. Or why else despite the economy doing great guns, first the finance minister and now the prime minister are two worried men? After the warning from P Chidambaram in August over poor growth in key infrastructure sectors, Prime Minister Manmohan Singh has now asked his economic advisory council chairman C Rangarajan to suggest measures to check slowdown in industrial activity. Rangarajan, who has also been asked to do a study on the problems faced by exporters hit by the rupee appreciation, would submit his report within a month. In a letter to the Prime Minister earlier in August, the FM, while expressing concern over the slowdown in the key sectors, had also expressed worry over the fact that the driving force of the economy —the manufacturing and services sectors—could run out of steam in the latter part of the financial year with domestic consumption getting hit due to RBI’s tight monetary policy. On Friday too, he had urged banks to “re-look” the high interest rates that have slowed demand for new vehicles, leading to a slump in the auto sector. Industrial growth has plunged to 7.1% in July this year as against 13.2% in the same month last year. Low consumer spending has hurt automobiles and household goods. Manufacturing sector growth had fallen to 7.2% in July compared to 14.3% in July 2006. Also, loan growth has slowed to 23% the fortnight ended September 14 from 31% a year earlier as RBI increased borrowing costs for banks to a five-year high to bring down inflation. An added headache has been the sharp rise of rupee internationally. This has led to a decline in exports growth, leading to a rise in trade deficit. Exports for April-August, 2007 was $59.5 billion as against $50.2 billion, registering a growth of 18.36% in dollar terms and 5.56% in rupee terms during the same period last year. In August, exports rose 18.9% in dollar terms and 4.31% in rupee terms from a year earlier. In fact, exports had been showing a single-digit growth in rupee terms for the past several months. The rupee has appreciated against the greenback by over 11% since January 2007, to hit the nine-and-half-year-high mark of 39.57 to a dollar. Trade deficit went up 68.65% in August to $6.88 billion from $4.08 a year earlier and it touched the $32.5-billion-mark in the first five months of the fiscal year. However, according to EAC member Saumitra Chaudhuri, “Every fiscal has a couple of months which show slowdown in industrial growth. However, there has always been a revival. Even this time, the slowdown would be temporary. The index of six core infrastructure industries registered a growth of 9% in August 2007 compared with 6.6% in the same month last year. Of course, consumer durables have shown a slowdown. But we will see an investment-led growth soon. I am confident of 9-10% industrial growth.” Aditya Birla Group chief economist Ajit Ranade was also confident of the economy growing a robust 8.5%. “But compared to last year, there will be a significant 0.5% drop. However, if you see what is happening in the US and some other countries, our rate of growth is impressive.”

More News.... Source:  The Financial Express