17EconomyThe Economic Times, Mumbai, Saturday, 17 January 2015

IIP data on manufacturing sector forNovember 2014 shows a 3% growth overNovember 2013. This growth is due tolow base effect as the manufacturing in-dex in November 2013 and 2012 had de-clined by 2.8% and 0.8%, respectivelyover their corresponding month in theprevious years. The manufacturing in-dex was 177.8 in November 2011 whichdeclined to 176.4 in November 2012 andfurther to 171.8 in November 2013. In thesame month in 2014 the index at 177.0 isstill lower than it was in November 2011.

The manufacturing index is based onphysical output of various industries.From this it is clear that manufacturingproduction volume in November 2014 iseven marginally lower than that in No-vember 2011. The growth in manufac-turing for April-November 2014 is mere1.1%. The yearly average of manufac-turing index increased marginallyfrom 181.0 in FY12 to 181.9 in FY14[growth of just 0.5 % over two years].

Over the past six years ending March2014, the manufacturing index in-creased by just 3.3% p.a. All these areway behind the 12-14% growth envi-saged under the New ManufacturingPolicy. Even over a longer period manu-facturing CAGR, at 6.8%, was lowerthan the 7.1% GDP growth during FY01-14. Manufacturing is the growth enginein an emerging economy. Its growthshould be higher than that of GDP. De-spite very high growth optimism, man-ufacturing growth prospects continueto be uncertain and discouraging.

Experiences world over show thatmany times persistent under-perform-ance of industry despite favourable fun-damentals is caused by systemic impair-ment in the financial system whichaffects saving-investment-growth nexus.In our case, it is essentially triggered bytrust-deficit-induced systemic weak-nesses in the inter-firm sales on credit ar-rangement or trade credit (TC) system asthere is no apparent disorderly develop-ment in bank credit architecture.

In terms of financial intermediation,credit volume/activities, reach, inclu-siveness and credit redistribution, therole of TC network is truly stupendous.

The Intensity/pattern of intermediationof bank credit, private savings and sup-pliers’ credit by firms through TC deter-mine the volume of credit supply, level ofdemand for bank credit, credit multi-plier, micro-liquidity and market liquidi-ty. TC is too interconnected to financialnetworks and real sector to ignore. Sys-temic weaknesses in TC expose the finan-cial system to contagion risk. Under-standing and mapping these complexand dynamic interconnections in finan-

cial networks areessential to iden-tify fault lines asthese impact sav-ing-investment-growth nexus andmore so credit-in-tensive manufac-turing sector.

Explaining thesluggishness in

manufacturing in terms of policy issuesis oversimplification. Prof Nassim Ta-leb states that today in a highly intercon-nected world, consequences from smalldisturbances in one place can lead – veryrapidly – to large effects in another oreven generalised cascades. It is quite log-ical to construe that systemic weakness-es in all important TC can set off deep,widespread and enduring economicslowdown when with a less than 5%share in total US mortgage market, thesubprime mortgage crisis could triggerprolonged global economic crisis.

Research is needed on generalised cas-cades arising from systemic weaknessesin TC. We have to understand its magni-tude and mechanism of propagation for ameaningful intervention. Ignoring thesewill continue to impact manufacturinggrowth. NPA environment may deterio-rate further as TC continues to be thelender of the last resort in respect of work-ing capital for vast majority of firms.

BL Chandak, Ex-DGM, Small Indus-tries, Development Bank of India

Manufacturing: Is itGrowing or Sluggish?

Guest Column

Manufacturingindex was177.8 in Nov2011 and 177in Nov 2014

Our Bureau

Kolkata:None of the 204 coal blocks thatare to be auctioned in two tranches, thisyear and the next, will be given away forcommercial mining for sale in open mar-ket, coal secretary Anil Swarup said inKolkata on Friday.

“In the first tranche, under which 101blocks will be auctioned, the governmentintends to place under the hammerblocks meant for projects which areready for production — be it in power,steel or any other segment,” said Swa-

be monitoring project status and will bein constant touch with the environmentministry so that clearances are receivedin time. The government has also decid-ed that clearances received by formerblock operators will be transferred to thenew operators after auctions. “Theyneed not apply afresh for clearances al-ready received,” he said.

A project monitoring group has beenformed that will keep tabs on projectprogress for both the private sector andCoal India. This group will also facili-tate block operators so that projectscome up in time.

the nation’s projected demand of 1.5 bil-lion tonnes of coal per year.

The tranche of 101 coal blocks will beauctioned in three sets. In the first set, 42blocks with peak production potential of90 million tonnes every year will be sold.The second set of 32 blocks is expected tohave capacity of 140 million tonnes,while the third set of 27 blocks could pro-duce 140 million tonnes per annum – to-talling around 350 million tonnes. Thesecond tranche of 103 blocks is expectedto produce 150 million tonnes a year.

In Touch with Environment MinistrySwarup said that the coal ministry will

rup, making it clear that the blocks willnot be given for commercial market sale.

The second tranche of 103 blocks is like-ly to be taken up after March 2016, the sec-retary said. “In this tranche, the govern-ment may auction blocks to projects thatmay have units under construction. A fi-nal decision on eligibility for participa-ting in auctions for the second tranchewill be decided later,” he added.

The government is targeting total pro-duction of 500 million tonnes for these204 blocks by 2020. By then, monopolyminer Coal India is expected to double itsproduction to 1 billion tonnes and meet

‘No Commercial Sale from Auctioned Coal Blocks’

Jonathan Spicer & Ann Saphir

New York | San Francisco:Tumbling oil prices havestrengthened, rather thanweakened, the Federal Re-serve’s resolve to start raisinginterest rates around midyeareven as volatile markets and asoftening US inflation outlookmade investors push back thetiming of the “liftoff ”. Inter-views with senior Fed officialsand advisors suggest they re-main confident the US econo-my will be ready for a modestpolicy tightening in the June-September period, while anysubsequent rate hikes willprobably be slow and dependon how markets behave.

While they are hard-pressed toexplain why bond yields havefallen so low, their confidence inthe recovery stems in part fromin-house analysis that showsfalling oil prices are clearly posi-tive for the US economy.

Internal models also suggestthat a decline in longer-term in-flation expectations probablydoes not signal a loss of faith inthe Fed’s 2% inflation goal.

Instead, the models attribute

much of the recent decline inmarket-based measures of in-flation expectations to in-creased investor confidencethat prices will not spiral out ofcontrol, officials say.

Policymakers’ public com-ments reflect that, as they soundunperturbed by what has been asteep drop in recent months. “Iam watching the inflation expec-tation numbers but not drawing aconclusion that they call for anyaction or that they change in anyserious way my outlook,” AtlantaFed President Dennis Lockharttold reporters earlier this week.

Some of those interviewed

stressed that in the light of lastyear’s strong jobs gains waitinguntil mid-year represented a cau-tious approach rather than an ag-gressive one, allowing the Fed todelay the rate liftoff if needed,particularly if inflation expecta-tions turned sharply down.

However, with markets in-creasingly gripped by fears ofglobal deflation and economicstagnation, futures traders arenow betting the Fed will stayput at least until October, possi-bly until December.

Yet interviews with the Fed in-siders reveal that while theykeep an eye on volatile markets

they remain confident that unex-pected overseas headwinds willnot derail the US economy.

Cheap Gas BoostSo far, signs of domestic priceweakness, such as slow-growingwages, have not shaken the cen-tral bank’s faith that inflationwill rebound once energy mar-kets stabilise, the interviewsshowed. In fact, cheaper gasolineand the boost it gives particular-ly to lower- and middle-incomehouseholds could be just the shotof economic confidence the Fedneeds to tighten policy after sixyears of near-zero rates.

US Fed may Stick to Mid-yearRate Hike Plan Despite Volatility

Washington: The US Federal

Reserve said on Friday that it

will establish a community

advisory council of 15 citi-

zens to meet regularly with

central bank officials for a

broad conversation on the

state of the economy.

The move comes as the Fed is

pressured by labour and low-

income groups arguing for

continued low interest rates.

Fed Chair Janet Yellen and

other Fed officials have met

with these groups from late

last year to hear their con-

cerns, a departure from the

practice of previous central

bank leaders. The Fed said

the panel will have “a partic-

ular focus on the concerns of

low- and moderate-income

populations.”— Reuters

Fed to Establish a CommunityAdvisory Council

BL CHANDAK

Washington: US consumer pric-

es recorded their biggest decline

in six years in December and a

gauge of underlying inflation

held steady, which could bolster

the case for delaying the first in-

terest rate increase from the US

Federal Reserve. The Labor De-

partment said on Friday its Con-

sumer Price Index fell 0.4% last

month, the largest drop since

December 2008, after sliding

0.3% in November. In the 12

months through December, CPI

increased 0.8%. It was the weak-

est YoY reading since October

2009, and followed a 1.3% rise

in November. — Reuters

Consumer Prices Fall 0.4% in Dec

Officials think US will be ready for tightening by June-Sept and falling oil prices are a positive for economy

US Federal Reserve Janet Yellen