IIP FOR APRIL - FASTEST GROWING ECONOMY IN WORLD SHOWS A DEGROWTH????

By Ruma Dubey

A week ago, the headlines screamed that India was the fastest growing economy in the world. And today, IIP data for the first month of FY17 starts with a degrowth. IIP for April came in at -0.8%. This was broadly expected as IIP in March has literally been held by a thin shard of thread in the green at 0.3%.

Capital goods is down -24.9% v/s -15.4% in March and we cannot help but wonder how come? We keep on getting news about companies in this sector getting new orders and even the numbers of many engineering, construction and realty sector have shown some improvement. Then how come this major disconnect between what is really happening on the ground and what is being reported?

IIP number is calculated by taking a poll of companies in the sector and therein lay the problem - either data does not get collected every month and when it does get collected, it is all tallied up in one single month and thus the irrational volatility. Or else data is coming in from only a handful plants and then it is generalized for the entire sector.  Given the discrepancy and volatility in the capital goods sector, maybe data from small and mid cap companies is simply not being collected – not all companies reporting new orders are included in this data collection. Those in the know that when data for performance of cables is compiled, data comes from only one company – so how is that a representation of the entire sector?

Really, if this is way in which IIP data is collected and if policy decisions are based on these numbers then that’s really a sad state of affairs. The Govt too is worried about the integrity of this data. The Govt is exploring the possibility of setting up a single agency to collect data for compiling IIP and even inflation, instead of depending on so many agencies. The Govt surely needs to rework the way data is collected, classified and collated.

The Central Statistical Organisation (CSO) needs to relok at the way it calculates these numbers asap - we should have clarity, whether to cleebrate the GDP numbers or ruminate over the IIP numbers; right now there is just a sense of niggling doubt, no faith in the numbers.

The market will not pay much attention to these numbers on Monday as it will look ahead at the CPI data. Now that is not expected to be good either as seasonally, this is the time when price of food products are on the rise. This year there is the drought also to further compound the problem. Right now in June itself, price for one kilo of tomato Mumbai has crossed Rs.100 and most veggies are over Rs.50. One single apple costs over Rs.35-40. So this will give is us an indication of the kind of CPI numbers we can expect to see in the coming months.

All eyes will now be skywards, with hope that miraculously the rains will solve all of India’s woes. Maybe it will to a large extent. The week will also see the FOMC meet and till that happens, everything will be on a ‘pause’ mode. No rate hike is expected to be announced by Yellen, yet with nothing else happening, focus will remain FOMC.

For all of us, monsoon will be the determinant for future trajectory of growth, not just IIP but even inflation coming down.  IMD expects monsoon to hit Mumbai on Sunday….let’s hope that happens and Monday all blues get washed away!