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Last updated: 14 Jun, 2016  

Industry.9.Thmb.jpg Reforms must for growth to continue

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Bikky Khosla | 14 Jun, 2016
The April IIP numbers came as a shocker. Just when it seemed confidence in the economy had been restored by the fourth quarter GDP data, the industrial growth figures suddenly dampened the sentiment. Some sections are now even calling into question the recovery prospects, again. But I see no need to panic. The factory output data only confirms the concerns most of us raised ever since the announcement of the GDP figures, instead of going gaga over them, and now the dismal IIP numbers give a clear message that the recovery won't be without some speed bumps, and the Centre must act fast for a faster recovery.  

According to data released by the Central Statistics Office last week, IIP declined 0.8 percent year-on-year for April, with manufacturing output falling 3.1 percent. Capital goods output -- a barometer of investment demand -- contracted by a whopping 24.9 percent and consumer non-durables -- an indicator of rural demand -- fell 9.7 percent. In contrast, consumer durables output, which indicates urban demand, rose 11.8 percent. These figures give a dismal picture -- rural demand is weak and investment by the private sector is feeble. The government must address these challenges.

The solution lies in reforms. I think simplifying the tax structure can give a big boost to business confidence. Here, the GST can be a game changer, but unfortunately not much headway has been made on this bill till date. However, it is encouraging to see that BJP won total 12 seats in the just-concluded Rajya Sabha elections, and this, I think, will help the party give a renewed push to the bill. Also, there is still a lot to do to improve ease of doing business and reform labour laws. The faster we push the reform programme, the closer we will be to a recovery.

In addition, high interest rates are no less responsible for the industry's woes. The RBI last week left key interest rates unchanged in its monetary policy review, but it expressed its commitment to an accommodative policy stance, raising prospects of future rate cuts. At the same time, the Governor of the central bank emphasized on transmission of lower interest rates to borrowers by the commercial banks. He added that the central bank will tweak rules to push banks to pass on earlier rate cuts. This is good news. Since January 2015, RBI has reduced the repo rate by 150 bps, but it seems very few banks have passed on the benefits to their consumers.

I invite your opinions.
 
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Reform
M.L Sharma | Wed Jun 15 04:29:38 2016
Nice to read regarding reforms and government initiatives in all the areas. Government must do some thing for transport effectiveness and reduce the freight cost. In every states entery the sale tex peoples and local police harrasing the truck drivers and makeing huge money to verify no. of documents. If Central government do some thing of that , It will.reduce the tranport cost and increase the efficiency of tranportation.


Interrest rate
CK Sasidharan Nair | Wed Jun 15 03:41:23 2016
Banks must be nationalised and interest should be made 2 % -IIP and GDP will grow . Rural employment schemes and boost farming incomes which will increase rural demand .


 
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