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IIP data shows an upturn, but for UPA, there is no alternative to pushing envelope on policy reform
The gloom on the economy has declined somewhat, thanks to slightly better IIP data. The year-on-year growth in March was 2.5 per cent. This was not unexpected, as the month-on-month growth of seasonally adjusted IIP had shown a better performance from October 2012 onwards. At the same time, there are two reasons for reining in the optimism. While this is positive growth, 2.5 per cent is nothing to boast about. Sustained growth in India requires a substantial investment boom. While there is some improvement in the most recent CMIE investment data about new projects initiated, there is no sign of an investment boom.
Macroeconomic policy levers can do little about the slump in growth, owing to the policy mismanagement of recent years. Fiscal policy has no headroom to stimulate the economy by spending more or taxing less. If anything, the need of the hour is deficit reduction, which (in the short term) hampers GDP growth. The situation on inflation is dire: from February 2006 onwards, in every single month, the year-on-year CPI inflation has been above the target range of 4-5 per cent. In recent months, the inflation performance has been terrible, with double-digit values for all four months from December to March. There is little scope for lifting the economy through monetary easing.