Sunday, February 3, 2013

January was yet another month of slowdown in the industrial activity. The HSBC Purchasing Managers' Index (PMI), an indicator of industrial activity in a country, stood at 53.2 in January 2013. The figure for the preceding month of December was 54.7. This shows that though industrial activity grew in January, but it was at a slower pace than what was seen in December 2012. The PMI survey indicated that most manufacturing firms in India seem to be drawing down on existing inventories. This means that they are using the back log of inventories to satisfy demand rather than manufacturing more. This indicates a slowdown in activity. Given that manufacturing forms a large portion in the Index of Industrial Production (IIP), in all likelihood, IIP numbers would not be very heartening either. This would further drag down the country's already slowing growth.

The RBI has cut down interest rates in recent months. At the same time it has also cut down the CRR rate. The higher liquidity is expected to boost investment and manufacturing activity to some extent. But will that help improve the situation?