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A poll budget will be unhelpful

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A poll budget will be unhelpful

The budget is likely to be election-oriented and the government spending also will have an electoral angle

Credit: Getty Images

Some good signals have emerged on the economic front, while the strong negatives of the past persist and cause concern. One big positive is about inflation. Retail inflation fell to a one-year low of 5.72% in December 2022, against 5.88% in the previous month and 5.66% in December 2021. This should give some comfort to the government and the people who have been struggling with rising prices for many months. With this, inflation has now stayed below the upper threshold of the Reserve Bank of India’s inflation targeting framework for two continuous months, after breaching the threshold for several months earlier. But the fall has largely been driven by lower food price inflation. Core inflation continues to remain high, and it is unlikely to yield much in the near future, according to present indications. Crude prices are likely to rise above $100 when the Chinese demand resumes, and that is bound to push up prices. 

Another good sign is the increase in industrial production, which has improved across all segments. Industrial output rose by 7.1% in November 2022, after falling 4.2% in October. Manufacturing is up 6.1%, while electricity has grown over 12%. Both the consumer durables and non-durables category have seen a healthy uptick. Infrastructure and construction goods grew 12.8%. But this may not be the sign of a sustained and broad-based increase in industrial activity. These segments have always been volatile and the impact of domestic policy tightening and the slowdown in external demand may lead to a slackening of the sector again. There is a view that the recovery will need more policy support. It has been pointed out that the output levels of intermediate goods and consumer durables are yet to reach pre-Covid levels. Sectors that witnessed double-digit growth rates in November might yet have fallen to single-digit growth in December. The employment situation has not improved and the concern over the inability of the economy to create more jobs continues. 

Merchandise exports worth $34.48 billion was recorded for December 2022, constituting a 7.75% rise from November’s $32 billion, but it also marked a steep 12.2% dip from a year ago. Imports also contracted 3.5% to $58.2 billion, from $60.33 billion a year ago. Goods exports have been hit this year because of the slowing of global demand caused by events like the Ukraine war and the recessionary trends in the developed world. There are no big growth triggers for the economy in the near future. The budget is likely to be election-oriented and the government spending also will have an electoral angle. That is not good for the economy. 

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