The Hindu Business Line : Rainbow on the horizon

Most manufacturers confronting the worst decline in output and demand in several years may not remember the time when interest rates were high; raw material costs, including fuel, were shooting through the roof and credit was freely available and the wheels of industry were turning on brisk demand. Now interest rates and raw material prices have eased considerably yet the sentiment is gloomy with job losses and output cuts in the organised sector. The year began inauspicio usly for industry in general, heralding the start of a bad fourth quarter. Yet a look at some numbers offers hope of a break in the dark clouds.

Some key growth drivers such as steel and cement appear to have bucked the falling trend in both January and February. Cement despatches and steel sales have been moving at a fair clip and industry leaders appear positive that the following quarters would also treat them kindly. Significantly, both have surged on the back of rural and semi-urban demand; bountiful harvests in the North and East and higher support prices have added to purchasing power. In January carmakers witnessed a 7 per cent fall in sales but that has not stopped a series of alliances between leading auto firms and public sector banks for auto financing; public sector banks from the State Bank of India down to regional ones have shown a new-found zeal for a slice of the business dominated by private sector banks. There is an air of confidence that Tata Motors’ Nano and rival small cars in the offing would not just revive demand but also add social benefits if the polluting auto-rickshaws in some in some metros and most small towns are replaced by the small car taxis. Also, the Ministry of Urban Development’s plan to modernise ancient bus transport systems in urban areas should further galvanise the automobile and in turn, the steel industries. Some positive change is seen in bank credit too; for the first time since December banks lent twice as much to the non-food sector as they invested in government securities in mid-February. Clearly, banks have begun to whiff business opportunities that they hadn’t just a few months ago. As election campaigns gather steam, one could reasonably expect spending to increase and short-lived as that might be, it would create a positive sentiment whose effects will linger.

It would be tempting for policymakers to assume that the signs of pick-up originate in infrastructure spending. Perhaps it does: but then all the more should the next Government ensure that every rupee spent is spent well.

Related Stories:
Inflation is down, but so is industrial output
January sees some growth
Slipping on fiscal deficit targets
Dealers see car loan rejections declining
More car makers partner PSU banks for finance