All recent economic data clearly points towards a demand collapse/ What does the story of the one

handed economist tell us about the Indian economy Vivek Kaul The story goes that Harry S Truman, the president of the United States between April 1 !" and #anuary 1 "$ on%e asked for &a one handed e%onomist'( &All my e%onomists say, )on the one hand(((on the other,' he bitterly %omplained( The *uestion is why do e%onomists do that+ ,hy do they have a tenden%y to argue both ways+ ,hy %an-t they be more %lear about things+ .ne reason for this is the fa%t that different e%onomi% data often point in different dire%tions, and this produ%es many &on the other hand' kind of e%onomists( Very rarely, does different e%onomi% data point in the same dire%tion( And that is happening in the /ndian %ase right now( 0ifferent e%onomi% data are all %learly showing that there has been a %ollapse in %onsumer demand( 1et-s start with the trade defi%it for 2ebruary 341!, whi%h was de%lared on 5ar%h 11, 341!( Trade defi%it is the differen%e between imports and e6ports( The trade defi%it fell by !3(17 to 89(1 billion( This fall was primarily on a%%ount of imports %oming down by at 1:(17 to 8$$(93 billion( /mports fell be%ause of a 3!("7 fall in non oil imports to 834(1 billion( ;on oil imports were at 83<(: billion in 2ebruary 341$( This means a fall of 8<(< billion( .ne reason for the fall in non oil imports was the fall in gold imports( =old imports in 2ebruary 341$ were at 8"(3! billion( This year they fell to 81(<$ billion, a differen%e of 8$(<1 billion( As mentioned earlier total non oil imports fell by 8<(< billion during 2ebruary 341!( ,hat this %learly tells us is that fall in non oil imports is not >ust be%ause of a fall in gold imports( A ma>or part of the fall is %learly be%ause of a la%k of %onsumer demand for imported goods( ;ow let-s look at the inde6 of industrial produ%tion?//@A for #anuary 341!( The //@ is a measure of the industrial a%tivity in the %ountry( This data was de%lared on 5ar%h 13, 341!( The overall inde6 grew by >ust 4(17 during #anuary 341!( ,hile this is an improvement over the last few months, it is nothing worth getting e6%ited about( 5anufa%turing whi%h forms a little over :"7 of the inde6 fell by 4(:7 during #anuary 341!, in %omparison to #anuary 341$( This primarily is on a%%ount of the slowdown in %onsumer demand( ,hen %onsumers are going slow on pur%hasing goods, it makes no sense for businesses to manufa%ture them( ,hen we look at the //@ from the use based point of view it tells us that %onsumer durables ?fridges, ABs, televisions,%omputers, %ars et%A are down by 9($7 in %omparison to #anuary 341$( The overall %onsumer goods se%tor is down by 4(<7( The la%k of demand also means that the investment %limate for businesses is not really great( This is refle%ted in the la%k of %apital goods growth, whi%h was down by !(37 during #anuary 341!( This slowdown in %onsumer demand was also refle%ted in the gross domesti% produ%t?=0@A numbers de%lared around two weeks ba%k( /f we look at the =0@ from the e6penditure point of view, the personal final %onsumption e6penditure?@2BCA for the period .%tober to 0e%ember 341$, formed <1("7 of the total e6penditure during the period( /n September to 0e%ember 3413, the @2BC had formed around <3(:7 of the total e6penditure( ,hat this %learly tells us is that @2BC is not rising as fast as other e6penditure( /n fa%t, during the period, the @2BC rose by >ust 3(<7 to Ds ,91,!<$ %rore in %omparison to September to 0e%ember 3413( /nterestingly, during the period September to 0e%ember 3413, the @2BC had grown by "(17( ,hat this %learly tells us is that people are going slow on personal e6penditure( The reason for that is high inflation whi%h has led to more and more money being spent on

meeting daily e6penditure( Detail inflation in general and food inflation in parti%ular has been greater than 147 over the last few years, and has only re%ently started to %ome down( Hen%e, people are postponing all other e6penditure and that has had an impa%t on e%onomi% growth( .ne manEs e6penditure is another manEs in%ome, after all( So where does that leave inflation+ The %onsumer pri%e inflation for 2ebruary 341! %ame in at 9(17( /t was at 9(: 7 in #anuary 341!( A ma>or reason for the fall has been a fall in food pri%es( 2ood pri%es in 2ebruary 341! rose by 9(":7 in %omparison to last year( This, after %onstantly showing a double digit growth for a long time( /nterestingly, food pri%es fell between #anuary and 2ebruary 341!( The *uestion is will food pri%es %ontinue to fall after falling for three straight months+ The answer is no( Unseasonal rains and hailstorms in parts of the %ountry have damaged %rops, and this is likely to push up pri%es again( 2ood pri%es form %lose to "47 of the %onsumer pri%e inde6, whi%h is one of the measures of inflation( Also, food forms nearly half of the e6penditure of the average /ndian household( Hen%e, for any pi%k up in %onsumer demand to happen, food pri%es need to %ontinue to stay reasonable( 2urther, non fuelFnon food inflation, or what e%onomists refer to as %ore inflation, fell by around 34 basis points ?one basis point is one hundredth of a per%entageA to :( 7( This has been proving to be a tough nut to %ra%k( ;on fuelFnon food inflation takes into a%%ount housing, medi%al %are, edu%ation, transportation, re%reation et%( /f %onsumer demand has to be revived it is important that %ore inflation %ontinues to fall, over a period of time( Along with this food pri%es need to %ontinue to fall as well( /f that happens, then some %onsumer demand is likely to %ome ba%k( ?Vivek Kaul is a writer( He tweets GkaulHvivekA