Submit :
News                      Photos                     Just In                     Debate Topic                     Latest News                    Articles                    Local News                    Blog Posts                     Pictures                    Reviews                    Recipes                    
  
Low growth in few sectors needs urgent attention
Retail inflation at 18-month low: Retail inflation dropped to 18 month-low at 2.19 per cent. Due to deflation in December, 2018, pulses and its products touched -7.1%, vegetables -16.1%, sugar and confectionery -9.2%, eggs -4.3% etc.

In economics, the decline in the level of the general value of commodities and services is called deflation. Deflation occurs only when the rate of annual inflation falls below zero per cent, which in turn leads to an increase in the real value of the currency, so that the buyer can buy more items in the same amount. In this case, inflation reduces the real value of the currency, while deflation increases the real value of the currency.

In December 2018, fuel inflation remained confined to 4.5% due to lessening of the price of crude oil in international market. Due to a surge of 9.0% in health and 8.4% in education, core retail inflation increased to 5.73% in December 2018. Core inflation means the change in the price of commodities involved in the basket. It does not include high fluctuations in prices such as food and fuel.

The most amazing aspect of inflation data is the increase in rural health and education inflation, as there is a decline in rural demand in the present time. This may be due to the change in the procedure of collection of data and the upgradation of health services due to the implementation of the Ayushman Bharat Scheme. One reason may be the increase in the prices of medicines. Another surprising aspect of the case is that the cost of education in rural areas has also increased. In such a situation, the Central Statistics Organization (CSO) should disclose the real reasons by examining the increase in the cost of service in the rural area from October, 2018.

Service inflation is increasing faster than commodity inflation

When analyzing economic activities, it is common to differentiate between services and commodity. Globally, the inflation of services increases faster than inflation of commodities. Now even in India, such a situation is being seen. Inflation is rising with respect to housing since March, 2018 and the commodity remains above the inflation. In December, 2018, the difference was 60 BPS. The difference in inflation between goods and services is continuously rising and it has reached 212 BPS.

Differences in retail and wholesale inflation

Wholesale and retail inflation was running simultaneously until October, 2017. After that, the difference between the two series was 205 BPS in January, 2018.

The difference between the two decreased to 9 BPS in May, 2018. Later, the difference between these two started to increase again and by December, 2018 this increased to 161 BPS. A big reason for this is that the immature market, which are present in all over country. Prices are declining in the wholesale market, but this trend is not visible in the retail market. The decline in prices in the wholesale market is much faster than the retail market.

Demand for goods & services are not increasing

In the second half of the financial year (FY) 2019, the story of demand cannot be called satisfactory. Growth rate of Gross Domestic Product (GDP) in the third quarter was 6.7%, which is not encouraging at all. Automobile sales declined 23% in the fourth quarter of FY 2018. From the fourth quarter of FY 2018, to third quarter of FY 2019, growth was at the rate of 6.7% on the year-on-year basis.

In the December quarter of the current financial year, demand for heavy commercial vehicles was also not encouraging. There is also a slow increase in the consumption of oil products. It saw an increase of 9% in the fourth quarter of FY 2018, while in the third quarter of FY 2019, increase in volume of petroleum products has decreased to 1.8%.

The GDP figures show a slow increase in personal consumption expenditure. In the second quarter of FY 2019, the private financing expenditure (PFCE) decreased to 5.2%, which was 7.8% in the first half of FY 2019. In this context government spending expenditure is also not expected too much increase. It is notable that it is natural to see the negative impact of decline in PFCE on the GDP.

Investment data is also not positive. According to the quarter on quarter (QOQ) figures, there is degrowth of 13% in investment. Degrowth means to reduce consumption, but not to cut welfare activities. In this context, significant decline in the investment in electricity and water sector has also been recorded. Pradhan Mantri Asha Scheme has been launched to give fair value to the farmers produce, but under this, the procurement is not being increased. At present, the performance of this scheme is very weak. To help the farmers in this light, there is a need to consider other options.

In order to solve problems of lessee farmers, the NITI Aayog, brought the Model Agricultural Land Act, 2016, which aims to legalize the process of leasing agricultural land, so that banks and financial institutions can provide agricultural loans to lessee farmers. Now in Uttarakhand and Uttar Pradesh this Act has been given legal form. However, the benefits of this law are still to be seen.

Economic activities are in low level in the third quarter of FY 19

According to the Composite Leading Indicator (CLI), the economic activity in the third quarter of FY 2019 has slowed down and the GDP growth in the second half of fiscal year 2019 is estimated to be below 7%. Significantly, CLI works on 32 leading indicators. Slowdown is seen in the sale of public vehicle, which is an indicator of urban demand, and sales of commercial vehicles are also low in November, 2018. Domestic air passenger traffic has also seen a decline in November, 2018.

The cement production is an indicator in the manufacturing activity has increased at 8% in the month of November, 2018, which was 18% in the previous month. This is 12 months low on the basis of year-on-year. Further, during the month of November, 2018, the degrowth of 0.4% were seen in IIP manufacturing activity, which is a sign that demand for both consumption and investment in the economy has slowed down.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
COMMENTS (0)
Guest
Name
Email Id
Verification Code
Email me on reply to my comment
Email me when other CJs comment on this article
}
Sign in to set your preference
Advertisement
merinews for RTI activists


Advertisement
Not finding what you are looking for? Search here.