Recent data on industrial production looks good and has encouraged suggestions that monetary policy can now be reversed. The data on exports, on the other hand, looks bad, and has led to media reports on how appreciation of the rupee needs to be prevented. Both data releases, which compare the scenario today to the pre-global financial crisis months, give wrong signals. Policy changes arising from ignoring the intervening months would be a mistake. More importantly, looking ahead, in the changed environment after the financial crisis, India needs to rethink its growth strategy. In the light of expected demand conditions in world markets, Indian policymakers need to focus on nurturing domestic markets. India needs a reversal of policy, away from subsidising exports towards reforms that support faster growth of domestic markets.

The year-on-year growth in industrial production seen in August fails to capture recent trends in the behaviour of production. To look at recent trends, and thus focus more on what happened in the last 12 months, rather than compare today to the month of August last year, we should look at month-on-month growth rates, seasonally adjusted to clean them of seasonal effects. Those show that while June saw a sharp recovery in industrial production, there has been only a gentle increase since, at an average rate of below 5 per cent. The critical message that comes from looking at the period after the Lehman crisis is that there is no reason to be euphoric. We do see a pick-up in growth, but not enough to begin a reversal of policy.

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