Managing growth and price stability are the major challenges of macroeconomic
policymaking. In 2011-12, India found itself in the heart of these conflicing
demands. The Indian economy is estimated to grow by 6.9 per cent in 2011-12,
after having grown at the rate of 8.4 per cent in each of the two preceding
years. This indicates a slowdown compared not just to the previous two years but
2003 to 2011 (except 2008-9). At the same time, sight must not be lost of the
fact that, by any crosscountry comparison, India remains among the
front-runners. With agriculture and services continuing to perform well, India’s
slowdown can be attributed almost entirely to weakening industrial growth. The
manufacturing sector grew by 2.7 per cent and 0.4 per cent in the second and
third quarters of 2011-12. Inflation as measured by the wholesale price index
(WPI) was high during most of the current fiscal year, though by the year’s end
there was a clear slowdown. Food inflation, in particular, has come down to
around zero, with most of the remaining WPI inflation being driven by non-food
manufacturing products. Monetary policy was tightened by the Reserve Bank of
India (RBI) during the year to control inflation and curb inflationary
expectations. The slowing inflation reflects the lagged impact of actions taken
by the RBI and the government. Reflecting the weak manufacturing activity and
rising costs, revenues of the centre have remained less than anticipated; and,
with higherthan- budgeted expenditure outgo, a slippage is expected on the
fiscal side. The global economic environment, which has been tenuous at best
throughout the year, turned sharply adverse in September 2011 owing to the
turmoil in the eurozone, and questions about the outlook on the US economy
provoked by rating agencies. However, for the Indian economy, the outlook for
growth and price stability at this juncture looks more promising. There are
signs from some high frequency indicators that the weakness in economic activity
has bottomed out and a gradual upswing is imminent.
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