This week, the Ministry of Finance and the Reserve Bank of India have some tough decisions to take. StatsGuru collates the headline numbers that lay bare their dilemma.
For Finance Minister Pranab Mukherjee and RBI Governor D Subbarao alike, the explosive growth in the Central fiscal deficit since 2008-09 (Table 1) is a matter of concern. High fiscal deficits are inflationary and unsustainable. The priority should be to return to good fiscal management—but the path is narrow, because growth has collapsed, as Table 3 shows. Manufacturing, mining and construction have been particularly weak — confirming the trend of the Index of Industrial Production (Table 2) — indicating softening growth prospects for the coming year, too.
Nor can the finance minister look outwards for help. Weak global demand for goods and services, and high oil prices, have together caused India’s trade balance (Table 4) to dip precipitously over the past year. However, it’s not all bad news. In particular, inflation seems to be trending downwards at the moment, as Table 5 indicates. This should allow the finance minister greater freedom to raise excise taxes (which could have an effect on prices), and might allow the RBI to focus on growth rather than inflation-fighting. Some other indices of future output — such as HSBC’s Purchasing Managers’ Index, in Table 6, seem to suggest that the Indian economy is moving out of the trough.(Click here for table & graph)
In which case, the Budget and the mid-quarter monetary policy review might simply have to avoid doing major harm. As the movement of the Nifty over the past fortnight — which included the UPA’s election loss — could indicate (Table 7), the markets don’t expect any miracles this week, and might already have priced in a disappointing Budget.
