DEC IIP - GETTING TO THE BOTTOM OF THE PIT
DEC IIP - GETTING TO THE BOTTOM OF THE PIT
By Ruma Dubey
Very disappointing numbers. That is probably what comes forth at a glance and everyone seems to concede to. But given the trend over the past few months, it should not really come as a surprise. As we had mentioned when the Nov IIP numbers had come in, the numbers for Nov were more of a blip as it had jumped back from a sharp negative growth in Oct. Thus the base effect, in terms of MoM as well as YoY will show Dec IIP as pretty poor. Well, that does not mean that the figure is not poor; it is poor, there is no denying that truth.
The fall in capital goods is especially sharp. And that is an indication that investment has indeed slowed down sharply. The woes of the power sector continues and unless we see the Govt announcing reforms in this sector soon, the plight could only get worse. The elections are expected to get over by Feb and till then, one can expect the Govt to do nothing. That pretty much means that we will see this degrowth in the capital goods sector for a few more months.
Mining is another sector which has been consistently down. And that again is thanks to the ongoing ban. Once again, unless that is rectified, we can expect the sector to remain down. Manufacturing sector, naturally, is down as almost all the other sectors are down. And this has collectively pulled down the growth.
But in all this what emerges is that at least there is no degrowth in the consumer goods – durable and non durable. This means people are still buying and it is this buying which is keeping the IIP in the positive or else, it would have slumped into the negative like in Oct. That also means that people do have the money and once the situation improves, the bounce back will be jaw dropping.
We might not yet have scrapped the bottom but we are somewhere close to the bottom. We could see a month or two of disappointment. Yes, FY12 will end on a dismal note but the good part is that we could see good times in FY13, especially the second half. If we are seeing a GDP of less than 7% in FY12, it could be around 7.2 to 7.5% in FY13 as once this growth engine starts chugging; it will zoom into the fast lane.
Next month is extremely decisive. Jan IIP numbers will come in on 12th March. The RBI will present its Credit Policy on 15th March and the Union Budget is scheduled for 16th March. Before that, next week, we have the inflation data coming in. In all likelihood, RBI will wait till April to start the cycle of easing interest rates. In March, it could wait for the Budget and maybe tinker with only the CRR.
The good news is that we maybe getting close to the bottom from where it has to only bounce back. And the bad news – we may have to just grit and bear the next month or two. Well, where we have endured so much, what is a month or two more?