IIP Improves, But Economy Still in Gloom

Bangalore: The Index for Industrial Production (IIP) data released by the Government of India for the month of August 2012 shows a 2.7 percent growth over the August 2011 production. The manufacturing sector in particular, shows a growth rate of 2.9 percent against the August 2011 figures. This data, though encouraging has to be weighed against the recent global and domestic developments in the economy.

With S&Ps threatening to downgrade India’s credit rating and the IMF slashing the growth forecast for India to 4.9 percent for the year 2012, attributing the same to absence of major reforms and depleting investor confidence, the government’s recent reform measures have restored some faith in the economy. The trade deficit is a cause for concern. India’s trade deficit stands at a whopping $18.1 billion for September, with the exports remaining lackluster. Exports fell 10.8 percent to $23.7 billion, from a year ago in, September 2011. This has increased pressure to ease the cost pressures on Indian exporters. The enlarging trade deficit may also have a negative impact on the current account deficit which stands at 3.9 percent of GDP in the first quarter of FY13.