Hindu survey of Indian industry 2012

These are testing times for Indian industry. In the domestic economy, the growth impulse is not very strong thanks to the Reserve Bank of India's tight monetary policy aimed at taming high inflation. While the central bank may have succeeded in its objective, collateral damage has been done to industrial growth. Factory output data in the last few months has

been showing a confusing trend with a growth in one month followed by a decline in the next. What is worrying is that growth indicators in capital goods the segment of industry that is a clear pointer to ongoing investment activity are pointing downward. This indicates that companies are slowing down their investments in fresh capacity creation. This is but a natural response to falling demand.

Industry has been demanding a roll back of the hard money policy pursued by the Reserve Bank. While the latter has stopped the trend of raising rates since the second quarter of 2011-12, it has yet to commence the process of rolling back rates which can give a leg up to demand in the economy.

Meanwhile, global economic trends are anything but encouraging. In fact, the events in the euro zone are actually alarming given that the European Union is a major trading partner for India. Though a bailout package for Greece has been agreed upon, things are still fluid and the euro continues to be under pressure. The only sliver of positive news in all this gloom is the encouraging economic data flowing in from the U.S. where we seem to be seeing signs, if only faint, of a turnaround. These are early days though to take the data for granted.