No real debate.

The Index of Industrial Production was down by 0.4% in September and August was revised down to 2.29% from 2.66%. This means that the IIP has been falling since March except in the month of May. The index for capital goods has contracted by 12.2% in September. It has contracted in 13 out of the last 15 months. This would seem to indicate that new factories are not being set up or are being put on hold because there is over capacity already. Yet the Purchasing Managers Index has increased to 52.80 from 52.78 and index for output has increased to 53.20 from 52.74. Anything above 50 is an increase while a figure below 50 shows contraction. This would seem to suggest that output is increasing because sales are rising. So how do we understand the statistics? How can output be rising if production is falling? Is it possible that the PMI and the increase in output are reflecting the rise in prices and not any real increase in sales? That might explain why the IIP is falling while the PMI keeps increasing every month. Predictably an anguished howl has gone up from business fellows, politicians and officials for a cut in interest rates. To increase the already unbearable pressure on the Reserve Bank some people are suggesting a cut of 50 basis points while others are suggesting that the Bank should go the whole hog and slash rates by a full 100 basis points. So intense is the pressure that the Governor of the Bank has bowed to it and promised to lower rates in January. The suggestion is that lower borrowing costs will make it easier for companies to expand, set up more plants and hire more people. But will they? If sales are already good and companies are making profits how will they increase sales by lowering rates? Lower rates would tempt people to buy bigger items such as cars and household goods such as TVs and fridges on loan. The reason people are reluctant to buy cars is because of enormous increase in fuel prices and they are unable to buy other goods because inflation is eating into their buying capacity. With the Consumer Price Index going up by 10% every month people are finding it tough to spend and are reluctant to go into debt because of fear for the future. So apprehensive are they of the economic well being of the country that they are buying gold even though the price of gold has breached Rs 32000/tola, which is a shade more than 11 grams. The price of gold going up means that the rupee is going down although that is not reflected in the official rates so one may expect to see a fall in the rupee which will spur inflation even higher. The real reason that all these industry wallahs are howling is because they have all been building apartments because that is the easiest way to multiply money, especially black money. They want rates down so they can unload their stock. Sadly no one is confronting these selfish crooks.