AUGUST IIP - VERY UNCOMFORTABLE NUMBERS

By Ruma Dubey

The optimism seen in Q1 seems to be waning. This IIP number for August is pretty ugly at 0.4% v/s 0.5% in July, the culprits being manufacturing and consumer durables. Basic good is the only one which has posted a decent growth; indicating that probably construction and real estate are the only activities happening.

One cannot help but wonder how these numbers are really being collected or rather the authenticity of this data. Core sector numbers which came in on 3oth Sept for August was good –  good performance by the coal, cement and electricity generation sectors lifted the eight core sectors’ growth rate to 5.8% in August against 4.7% in the same month last year. Coal production grew 13.4% , cement 10.3% and electricity generation was up 12.6%, steel production grew 9.1%. Now this core sector contributes 38% to the IIP, so naturally, the impact on IIP was expected to be positive and everyone had started talking about green shoots. Figures of 2 to 2.5% were doing the rounds. Green shoots they do not look like, more like some small weeds, which will only wilt under the sun. Very uncomfortable numbers.

One could not help wonder where all the growth of the core sector got written off in the IIP? The growth in the infra sector growth was reflected partly in the IIP numbers in the form of growth in electricity, mining and basic goods but the rest remained laggards, pulling down the overall IIP.

Manufacturing which has a 80% weightage in the IIP number was worse. Most analysts do not take into consideration capital goods at all as it simply cannot be trusted given the lumpy basket of goods it comprises of. Electricity has a 10% weightage consumer goods story is led by rural consumption and less by urban growth. With a good monsoon, we could only see an improvement in this trend only in coming months.  

In terms of IIP internals, 11 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of August 2014 on YoY. The industry group ‘Basic metals’ has shown the highest positive growth of 19.1%, followed by 14.3% in ‘Other transport equipment’ and 10.9% in ‘Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products’. On the other hand, the industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest negative growth of (-) 48.8%, followed by (-) 43.9% in ‘Office, 2 accounting & computing machinery’ and (-) 17.8% in ‘Electricity machinery.

And in terms of item-wise breakup, those showing high positive growth during the current month over the same month in previous year include ‘Stainless/ alloy steel’ (160.8%), ‘Sealed compressors’ (121.1%), ‘Air Conditioner (Room)’ (80.1%), ‘Plastic Machinery Incl. Moulding Machinery’ (59.4%), ‘Rice’ (56.7%), ‘Scooter and Mopeds’ (32.1%), ‘Three-Wheelers (including passenger & goods carrier)’ (31.3%) and ‘Fasteners (Excl. Zip-Fasteners)’ (25.1%).

While items showing negative growth are: ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 57.2%], ‘Generator/ Alternator’ [(-) 51.3%], ‘Computers’ [(-) 49.5%], ‘Marble Tiles/ Slabs’ [(-) 44.0%], ‘Polythene Bags Incl. HDPE & LDPE Bags’ [(-) 42.3%], ‘Aluminium Conductor’ [(-) 37.2%], ‘Sugar Machinery’ [(-) 33.6%], ‘Boilers’ [(-) 32.0%], ‘Sugar’ [(-) 30.8%], ‘Antibiotics & Its Preparations’ [(-) 23.8%], ‘Cable, Rubber Insulated’ [(-) 23.7%], ‘Steel Structures’ [(-) 22.6%] and ‘Fuel, Aviation Turbine’ [(-) 21.8%].

Clearly it is time for action. The Govt first needs to clear all the stalled projects or else how can one expect new investments to come in? On the positive side, crude prices have been down, monsoon has done well and rabi crop is expected to be good. These factors together, plus given the seasonal factor, we could see some moderation in the CPI rates in coming few months. Also with festivals round the corner, demand, especially consumer goods is expected to go up.

October is always a month of patchy growth numbers and wild markets. Let us hope that the festive demand propels demand and we see some improvement in coming months. Yes, we can only hope that next year, same time, we might see much better numbers. At least that is the promise of the Modi Govt.