IIP AND CPI - A PLEASANT SURPRISE ON GROWTH FRONT

By Ruma Dubey

The macro economic data which came in today evening were very much on expected lines, no unpleasant surprises here.

Consumer Price Index (CPI) for July came in at a two-year high of 6.07% v/s 5.77% in June. And this was led by sharp price rise in food inflation, which was at 8.35% v/s 7.38% (MoM). Vegetable inflation was slightly lower at 14.06% v/s 14.74% and pulses inflation rose from 26.86% to 27.5%. For a change, one inflation which are not looking at right now at all is fuel and that has come down to 2.75% v/s 2.92%.

The other data, IIP for June was a pleasant one – it rose from 1.2% in May to 2.1% in June; this is a gradual rise from April’s degrowth of -0.8%. This rise in IIP was led mainly by a good growth in consumer durables, electricity, minerals, intermediate goods. Capital good continues to remain in the negative.

In terms of industries, 18 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of June 2016. The industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest positive growth of 15.8%, followed by 8.8% in ‘Motor vehicles, trailers & semi-trailers’ and 8.7% in ‘Other transport equipment’. On the other hand, ‘Electrical machinery & apparatus.’ has shown the highest negative growth of (-) 46.1%, followed by (-) 13.8% in ‘Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products’ and (-) 9% in ‘Furniture; manufacturing.

Some important items that have registered high positive growth include ‘Lubricating oil’ (62.2%), ‘Woollen Carpets’ (38.9%), ‘Scooters and Mopeds’ (31.5%), ‘Ethylene’ (30.1%), ‘Steel structures’ (27.7%) and ‘Telephone instruments including mobile phone and accessories’ (25.3%).

Some important items showing high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ [(-) 84.0%], ‘Sugar Machinery’ [(-) 73.2%], ‘Heat Exchangers’ [(-) 53.3%], ‘Particle Boards’ [(-) 35.5%] and ‘H R Sheets’ [(-) 26.2%].

All hopes are now on the release of the 7^th Pay Commission. With no other trigger to really kick off growth, it is expected that the economy will now grow mainly on demand – a demand driven economy. Extra money coming into the hands will mean demand for mainly consumer durables will go up – when this kind of money comes in, people do not rush in to buy food or other items; it is almost always non-perishables. Thus the 7^th Pay Commission and the onset of the festival season could see a spike up in demand for consumer durables and that will be the growth pulley for the economy.

For the market, IIP no longer seems to hold much relevance. The overall feeling is that is does not really give the true impression of what is happening on the ground. As such, before the end of this year, the base year for calculation of IIP and WPI will be changed from the current 2004-05 to 2011-12. This is what they did for calculation of GDP, which propelled India to become the fastest growing economy of the world, which again is not really a representation of the truth. Thus we wonder if mere changing of base year will help.

Coming back to the impact of data on hand, the market will shrug this off on Tuesday – probably may not even recollect after the long weekend. The Prime Minister’s Independence Day speech will be awaited and so will the name of the new RBI Governor. Going ahead, inflation will remain a concern.

The Credit Policy is over and done with and the next one is scheduled for October only. The GDP for Q2 is scheduled for 31^st August. So for now, enjoy the long holiday, celebrate India’s freedom ….Tuesday is another day.