Problems persist - ''There are weaknesses in economic growth.''

Last week some economic indicators of the country showed good and healthy growth, though there was bad news too in the form of a near double digit food inflation too. The rise in food inflation was not unexpected as the general price rise was still strong and had got a special push from the diesel price hike in June. Even after all the tough and persistent monetary measures from the Reserve Bank of India, there is a realisation that inflation will be a fact of life for some time to come. In that gloomy context, the impressive 8.8 per cent growth in the Index of Industrial Production (IIP) in June, as against below 6 per cent in the previous two months, and the spectacular 81.5 per cent increase in exports in July should have lifted spirits. But the performance reports fade in brightness on closer scrutiny. A break-up of the IIP figures shows that there was actually a deceleration in some important sectors that make up the index. It was the growth in capital goods, especially power machinery and equipment, which grew by 89 per cent, that contributed to a good part of the 8.8 per cent growth. Capital goods has only a 9 per cent weightage in the index and its growth is not very real because it is built on a low base of last year. Areas like consumer goods and mining which have 30 per cent and 15 per cent weightage in the index grew poorly by 1.6 per cent and 0.6 per cent respectively. A high IIP growth rate with uneven performance by constituent sectors does not inspire confidence. The inconsistencies actually expose the weaknesses and problems in industrial and economic growth. The high export growth rate of last month is also outwardly creditable, especially in a very difficult global environment. The greater diversification of exported goods and of trade partners is also good. But the export growth was on account of the orders received before the current crisis in Europe and the US started. In the coming months the momentum is actually likely to be lost. The government has itself admitted that the year’s export target may not be met. Imports are likely to increase and trade deficit may increase, in spite of the likely fall in crude prices. Therefore the value of one month’s extraordinary performance should not be exaggerated.
DH