Change of tempo?

The Indian economy has been cruising for so many months now that even normally optimistic people are beginning to ask how long the party can last.

This niggling worry has so far not been borne out by any hard evidence. Both the stock market and the macro-economic indicators portend more of the same.

Of course, even the optimists recognise that there are some real dangers to sustainability, with crude oil prices threatening to go through the roof.

However, even on this front, while international oil prices have been at threatening levels for over two years now, their impact on global economic performance in terms of growth and inflation has been invisible.

The jury is still out on the levels that oil prices will have to scale before they affect spending and slow growth. On the domestic front, the same optimists will also readily admit that infrastructure constraints must begin to bite sooner rather than later.

However, even here, the infinite capacity of the Indian system to eke out one more mile from a seemingly empty tank comes to the rescue. So, is economic pessimism passé?

Perhaps. However, scepticism is a stubborn trait and the signs that the UPA government is abandoning even its relatively modest reform agenda constitute one source of concern.

Now, a more concrete and immediate warning sign has emerged. An analysis of the first quarter results of the top 500 companies in the country, carried out by this newspaper, shows an above normal decline over the last quarter of the previous year.

There is typically a dip in first quarter numbers, as companies adjust themselves to their new plans for the year, but this year's decline is substantially greater than last year's.

For this set of companies, sales declined by almost 9 per cent, compared with less than 5 per cent last year, while profits declined by almost 27 per cent, compared with about 16 per cent last year.

Of course, these numbers are biased by the oil companies' performance, which is beyond their control because of the government's unwillingness to raise prices, but the telling fact is that substantially more than half of the companies experienced a decline in sales and profits, as opposed to less than a third one year ago.

As economic indicators go, this is not clinching evidence. However, taken in conjunction with other signals, the sceptics' view deserves some consideration.

For one, sales of commercial vehicles, typically sensitive to business cycles, have been noticeably slowing and the credit companies talk of a rise in truck loan delinquency levels.

For another, while industrial growth is robust, much of the recent surge is due to growth in textile products at an annual rate of over 30 per cent in the last couple of months. Industrial growth will begin to look much more modest without this.

Viewed in the context of the oil price situation, which must translate into higher domestic prices sooner rather than later, and the complete absence of movement on power sector reform, one could be forgiven for thinking that the rapid growth that people have got accustomed to in recent quarters may be yielding to more modest growth rates in the coming quarters.