The summer has been harsh so far and there is worse to come. With every month, the official numbers look worse than before and the official responses look even more pathetic. One of the biggest farces played out last month was the petrol price hike, now partially rolled back, all in the name of deregulated pricing. Yes, crude price hikes necessitated higher petrol prices since January, but even with the dramatic fall in the rupee, crude oil is cheaper today than it was in March. The entire episode has left little faith in this government to act responsibly.

Growth for the January- March quarter was lower than expected, with the IIP dragging manufacturing down, to levels last seen in 1991-92. While credibility in the IIP is another issue altogether, the fact is that manufacturing has been slowing down for a few quarters. This quarter?s numbers are not likely to shine either - truck rentals for cargo have dipped in April and May, reflecting a more than 10% decline in despatches from industry. However, the national manufacturing policy put forth last October is another old style solution, with the government micro managing industrial zones. In India, the two fundamental factors of production - land and labour, are mired in red tape; as we pointed out last year, insulated liberalised zones are not a sustainable solution and will work just to create more lopsided growth. Policies that belong to the last century will not work in today?s world, but this government refuses to step into 2012. The problems have been chalked out clearly by one and all and are glaring at us in the face now - lower growth and stubborn inflation, all tied up with a fiscal deficit and current account deficit that stave off all hope for a revival in the rupee.

It is not just the rate hikes that have brought things to this pass, but cutting the rates would go a long way in cushioning the shock to industry. The RBI should go back to its earlier policy when rates had been kept in check, recognising that the primary drivers for inflation were in the primary products. Consumer price inflation has been in double digits since 2009, a brief dip for four months has now reversed in April back to 10% levels. Our real time monitoring of mandi prices has shown that the pressures in inflation have far from abated. In fact, while so far oilseeds, pulses, fruits and vegetables have been moving sharply upwards, the steam is coming back now in cereal prices with inflation in rice and wheat moving back into focus. With pre-monsoon rainfall deficient across most of the country, a whimsical monsoon will only add to the pressures in this segment. On the positive side for manufacturing products, input prices of some core commodities are set to stay subdued. With the slowdown in China, iron ore prices for instance are expected to fall 19%. Net net, it would be in order for the RBI to lower rates now; keeping rates up will not make any difference to inflationary pressures, growth has to take a priority now.

Over the past year, we were optimistic about the strength of the economy, but with regressive policies hammering us back a couple of decades, the outlook has been bleak the last few months. In the spreading gloom, there are as usual some bright spots. For instance, despite the IIP registering a negative growth in March for motor vehicles, SIAM production numbers show a 6.83% growth yoy in the same month. April numbers show production up at 5.81%, with sales rising by 10%. Cement sales have been buoyant, with a 10-12% growth in May from the country?s two leading cement firms, indicating hope for the construction sector showing better results this quarter. The HSBC-Markit PMI for May also shows stability in manufacturing activity, as it has over the past few months been at variance with the IIP. The services secto PMI showed a jump in activity in May, the index stood at its highest in three months. While India Inc?s last quarter results showed a slowing of sales growth, sequential rise in the operating profit numbers point to a reversal in the 2011 trend.

There is of course nothing like a crisis to get things back on track. Unfortunately a government in denial, cocooned in a bubble wrap of a persecution complex, will take longer, if ever, to help India out of its below 7% growth- above 7% inflation mode.

Tracking inflation in real time

The real time monitoring of primary food items at Indicus has consistently shown the pressure on prices in various commodities ? oilseeds, pulses, potatoes and so on ? before they turn around in the WPI. As has been mentioned before, due to differences in methodology, while the levels of inflation and index may differ between the Indicus Price Monitor and the WPI, the broad trends are in sync. The items highlighted in previous months have continued to exert upward pressure on the WPI, and the uptick in manufactured products in April?s WPI showed the impact of rising input inflation.

This month, we look at fibres, a group where inflation had been falling dramatically over the past year as prices came off the peak seen in the first few months of 2011.Cotton in particular had such a steep decline, it beat rubber to be 2011?s worst performing agricultural commodity on global exchanges. Though the supply of cotton is expected to be lower this year, international prices are not expected to rise substantially as demand has also slowed, more than expected. On the domestic front, cotton prices had been coming down, but in March, the government put in a cotton export ban, ostensibly to protect domestic cotton mills. With strong opposition, especially from Gujarat that has the highest production of cotton in the country, the ban was revised within six days. Since then prices have inched upwards marginally, in any case, the decline has stemmed.

Meanwhile, the steep fall in cotton prices has led to lower interest amongst farmers, especially in Gujarat and Maharashtra the two leading cotton producers ? seed sales have dropped by 15% this season. In Punjab and Haryana, that contribute the fourth and fifth largest shares to India?s cotton, the dry and hot weather recently could hurt yields. Clearly, domestic cotton output this year is not expected to be strong, providing a floor to prices. With all these factors into play, the slide in cotton inflation has been reversed, with an uptick in inflation since the end of March.