sTRIVE final.pdf

growth of only 0.2% which is totally
dreadful for a sector. This result shows
clearly the plethora of problems the Indian
manufacturers are facing. Also while
looking at another data on inflation in this
July, figures reveal that the rate of price rise
of primary products was at a high 10% plus
while that for manufactured goods was only
about half that rate; this means the
manufacturing goods’ price remains pegged
at a certain level in spite of the increase in
overall inflation.
You may wonder why this happens because
overall inflation means all products’ prices
should also go up equally without any
discrimination; since all fixed and variable
costs should have been going up because of
inflation. Naturally you will increase your
price to maintain your profit margin or at
least to avoid losses. So, as a manufacturer,
you could be least bothered about inflation
as long as you are also able to raise your
price level. If your product comes under the
necessity category, you can fully afford to
do it, but in case of luxury products, you
can’t do so since the demand for a luxury
product may go lower with the price raise.
Also due to the liberalization of economy,
foreign products are already flooded in
Indian markets and if you raise the prices
above a threshold level, you will lose a large
share of customer bases.
So now you realize that you can’t raise the
prices and the only option left is reducing
the cost of production. But you are not going
to get any relief here as well because the
cost of raw materials and other inputs such
as labour and capital would naturally grow
higher due to inflation and there is a little
scope for you to decrease the cost of
production unless you adopt a 100%
efficiency in your production which is also
not practically possible and even if it
happens, it is not going to reduce your
burden to a large extent. So the
manufacturers are cornered from all sides,
only because of the external problems and
not due to those which are caused by them.
In case of such crunch situations, it is quite
natural to expect that the government will
act to the rescue. After all, these things have
happened because of the inefficiency of the
government to tame the inflation and control
the rising prices of all other products. So it
becomes their moral responsibility to take
all the corrective measures, but
unfortunately they are not doing so. Instead,
they are doing exactly the opposite of what
has been expected out of them by merely
increasing the interest rate of lending several
times. If you see in last 2-3 years, the repo
rate has been increased so often with the
sole intent of controlling inflation. But
inflation is relentless in its pursuit and due to
the coagulation of funds caused due to the
hike in interest rates, the overall economic
growth is adversely impacted and this is
comparatively worse in the manufacturing
sector.
14
NOVEMBER 2012