Government economic information-gathering agencies have projected either a fall in factory output or a sharp decline in growth because of a drop in production of automobiles, cement and electricity generation for the month and the adverse impact of a high base in October 2007.
The Index of Industrial Production (IIP) grew 12.2 per cent in October 2007. India’s factory output rebounded in September 2008 with a growth rate of 4.8 per cent, after hitting a record-low rate of 1.4 per cent in August 2008.
The agencies have also projected that headline inflation could fall to 6 to 7 per cent by this year-end and to almost 2 per cent by the middle of next year. A sharp dip in fuel prices, they believe, alone would help reducing the Wholesale Price Index at least 100 basis points. Inflation after hitting a peak of 12.91 per cent in August 2008 has declined to 8.4 per cent for the week ended November 15.
The agencies have also pointed out that the pressure on the rupee is expected to increase as companies begin repaying overseas debt. They argue that companies had borrowed $145 billion in the last three to four years. Most of these borrowings were undertaken in 2006 and 2007. Repayment would result in increasing demand for foreign currencies, especially the US dollar, which in turn would weaken the Indian rupee.
They are also worried that the corporate sector might face serious foreign currency convertible bonds (FCCB) crises. That is because they are not making adequate provisions to repay these bonds in the event that they are not converted to shares.
There are other areas of concern too. Arrivals of vegetables and tomatoes have declined through the October-November period due to damage in crops as a result of heavy rains. That has been the key reasons prices of tomatoes have risen five -fold over last year.
Similarly, retail prices of essential commodities like rice, wheat and masur dal have been more or less stable but at higher levels primarily because of growing demand and limited supplies.