As we go further towards the election year, the domestic economy is not looking up. Admittedly there is good news coming in from the external sector on account of the rupee becoming cheaper against the US dollar, and also from the US economy. But the Indian government is not ready to make the most of this as it continues to be in a coma below the neck, and on an overdrive above. While GDP estimates for the last quarter showed the trough to be lower than 5%, the government's focus on social schemes rather than investment and employment is taking India back towards the Hindu rate of growth. The next two quarters will show 5-5.5% growth, but that is hardly any consolation, as after that it will fall further next year. Manufacturing is in deep trouble, with the IIP averaging just 1.2% growth and showing little signs of doing any better this year. The HSBC Markit PMI for Manufacturing showed the index at its 50 month low in May, but the problems are less in demand, more in infrastructure constraints: unfinished business levels rose due to power and water shortages. Power supply has been a constant problem, supply was deficit by 8.7% last year and by 8.4% in April and this sector does not see any brighter hopes this year. Auto sales fell for the seventh month in a row, while gold imports rise, together these show the state of expectations in the country.

For those looking upwards to the skies for some relief, the rains are on course so far but a lower than normal pre-monsoon season has already led to delayed sowing for some kharif crops. All in all, pricing pressures that are showing up in the Indicus Price Monitor continue to stay. The average wholesale price for potato, for instance, has climbed up from Rs. 1062.11 per quintal in March to Rs.1296.34 now in June. When it comes to metals and plastics, there has been a downtrend recently globally, but cautionary notes on that front have come from the RBI and the BIS, the trend cannot be taken for granted. So while there will of course be volatility in prices going ahead, a steady decline is highly unlikely over the year, leaving household and firm budgets under stress. Moreover, with impact of the Food Security Bill, when implemented, remains to be seen - on procurement prices, on the fiscal deficit - strong inflationary pressures will come through these avenues as well.

Higher expenditure for the elections can actually push up the growth rate a little, but the negative impact on the fisc makes the future prospects more uncertain. This is why our credit rating remains under pressure, and this is also why the rupee depreciated more against the USD than most other international currencies. One of the biggest problems the government faces this year is of taking everyone together. So when it can push the Food Security Bill through with an ordinance, it falls behind in implementing the GST and it continues to baffle on tax moves - this is hardly a conducive environment for encouraging investment. Corporate results for the last quarter reflect the depressed state that industry is in; rate cuts or not, with the government priorities the way they are, this state is set to continue this year too.

Net net, while the government pulls out the stops in investment meetings, tax conciliation and what not, the bottom line is that unless inflationary expectations are reined in, unless business sentiment is rooted firmly for long term investment, the economy will chug along at snail's pace. The fall in the rupee however will provide some relief to the exporting sectors, and who knows there may be limited improvements in private investment as a result.

P.S. Indicus has been tracking real time prices for 62 commodities over the past year and the indices are now available live on our website.

Tracking inflation in real time

The real time monitoring of primary food items at Indicus has consistently shown the pressure on prices in various commodities - oilseeds, pulses, potatoes and so on - before they turn around in the WPI. As has been mentioned before, due to differences in methodology, while the levels of inflation and index may differ between the Indicus Price Monitor and the WPI, the broad trends are in sync with each other.

The prices of urad or black gram rose through 2009 and 2010, reaching a peak of Rs. 6660 per quintal in September 2010. After that, with good crop, there has been a general decline. However over the last year, the deficient monsoon led to a short period of up-trend that started in May to peak in September, and again recently prices have been rising since March. Currently for the month of May the average all-India retail price of urad is Rs. 58.42 per kg, the lowest price is in the West Zone at Rs. 51.99 and the highest in the North-east Zone at Rs.64.43. The estimates of the kharif output that accounts for two-thirds of India's annual urad crop were revised upwards by the Ministry of Agriculture in the 3rd Advance Estimates. While the previous estimates had output lower by 11% compared to 2011-12, the revised estimates have output higher by 5.65%. Sowing for this year's kharif season begins in late-June and being essentially a rain-fed crop, the monsoons will once again determine the trends in price for the year ahead.