IIP DEFIES DEMONETIZATION. HOW????

By Ruma Dubey

December CPI Inflation came in at, as expected, lower at 3.41% v/s 3.63% (MoM).  But what did come as a gaping, jaw dropping surprise, was the incredulous IIP of 5.7% for November v/s a degrowth of -1.9% in October.  Almost all analysts across the board has not polled for more than 1% and to see this growth of almost 6%, everyone was left flabbergasted!

HOW? That’s the first question which comes to mind. Demonetization was announced on 8^th November and this was the month when demand was supposed to have taken a beating. Manufacturing credit growth was in the negative but in the IIP number, manufacturing has shown a whopping jump at 5.5%. Capital goods grew by a robust 15%, electricity grew the fastest at 8.9%, basic goods wa sup 4.7%, intermediate goods by 2.7%, Consumer durables by 9.8% and non durables by 2.9 – the overall growth in consumer goods was at 5.6%.

What contributed to the manufacturing? The industry group ‘Radio, TV and communication equipment & apparatus’ showed the highest positive growth of 32.2%, followed by 23.2% in ‘Electrical machinery & apparatus n’ as well as in ‘Motor vehicles, trailers and semi-trailers’.

Once again we cannot help but ask – HOW? Are we looking at the numbers of India for November or has there been a misprint?

There is so much volatility in these IIP numbers that we cannot help but wonder as to how can RBI and so many important economic decisions be based on this IIP number? Looking at this 5.7% where every household had to hold back all kind of purchases due to shortage of money, how can this November number not reflect the effect of demonetization? The ground reality has no connection whatsoever with this IIP number.

The problem with IIP is data collection which is irregular and inconsistent at both state as well as industrial level. IIP data is volume based index where data from surveys is collected through a variety of agencies. Most often they are inaccurate and misreported. If FIIs were accusing China of cooking their economic numbers and sending out a wrong picture, cannot help but wonder what message are we sending across.  

Will this have an impact on the markets tomorrow? The market is more likely to celebrate the numbers of TCS; it will be dictated more by individual company numbers, as Infosys numbers are expected too. Just as most in the media now ignore these IIP numbers, the market might also make this an irrelevant economic data. It’s a pity that this is the data on which all other decisions are taken by RBI and GoI.

We now will have all eyes on the Budget, polls in five states of India and RBI interest rate decision on 8^th Feb. For January, we just wait for February!