The new year begins on a bright note, especially bright for us because our leading point from last month?s newsletter has already registered in unofficial but credible data. We had said that ?growth is slowing but the economy is doing better than the current numbers indicate? - the latest PMI reading for manufacturing for December underlines what we have been saying for long now that the growth momentum is strong in India. Despite the precipitous fall in the IIP, the strong new business volume reported in the PMI showed that industry is not doing as badly as is thought. The MSME Business Confidence Survey conducted by Indicus Analytics in September had reported expectations of higher sales in Q3 and these appear to have now materialised. The PMI for Services Sector posted the sharpest rise for December since July and respondents were confident of better times in the year ahead. While the growth estimates will depend on the IIP numbers and therefore still show less than 7% in Q3, it is time to go beyond the official statistics for a while and look around at multiple indicators to get a better sense of where we are headed.

The Markit PMI reports a small uptick in employment, for the first time in five months, the MSME Business Confidence Survey also reported the positive change, the index for employment rose in December, reversing the two quarter fall and returning to March levels. In this survey, investment and expansion plans have been maintained throughout the last two quarters at levels higher than the early two quarters of 2011. While this does not show yet in the official data, the survey results indicate intent, which will translate into action as the rate hikes have now clearly come to halt. Clearly, the sparks of optimism that we sensed and spelt out two months ago are now slowly growing brighter.

What about inflation though? Tired of the government?s flawed inflation data, Indicus is rolling out its own price index. Indicus Price Monitor will allow you to check changing inflationary conditions on a daily basis. It shows that unfortunately, despite the crash in inflation in primary articles, there are some pockets that will continue to cause stress and food inflation will rise again in the coming months. For instance, oilseeds. Prices of ground nut especially have increased since the second week of December, reflecting the impact of expectations of a low rabi output with sowing at less than half of its normal area by the month end. Further, with oils/fats being the sole item in the FAO Food Price index to reverse a decline in November and the rupee at depressed levels, imports to make up the shortfall will not be coming cheap. The point is that while overall inflation may look bearable in the months ahead hitting 6-7% levels, pressure points in certain items will continue to plague both firms as well as consumers.

The government's WPI for November shows higher inflation for iron and semis, basic metal alloys, non-metallic mineral products, cement and lime etc. ? in effect inputs for industry have been under strain. Going ahead, while depressed growth in China and low projections of global growth will keep commodity price pressures down, and the Indicus MSME Business Confidence Survey indicates expectations of input price pressures easing in Q4. However, as volatility in these markets is a given, unexpected surges cannot be ruled out. With better business prospects for industry, the return of pricing power is once again on the cards. This will stave off any sharp decline in manufactured products inflation, making it much tougher for the RBI to call and plan rate cuts in the quarters to come.