IIP LOWER THAN EXPECTED, CPI HIGHER THAN EXPECTED

By Ruma Dubey

The numbers were bad. IIP for March’16 was flat, coming in at 0.1% v/s 2% in Feb’16, just about holding on to the positive. Manufacturing was the big culprit, showing a degrowth of -1.2%.  Capital goods was bad at (-)15.4% and the star performer in that sense was electricity at 11% growth.

And then came the shock. Consumer Price Index (CPI) for April came in much higher at 5.39% v/s 4.83% in March. Here, not just the price of vegetables, fruits, MoM pulse index, sugar , spices – food inflation just added higher to the CPI – up at 6.32%.

Interestingly, a break-up of state-wise CPI shows that currently Odisha has the highest inflation, followed by Maharashtra and third state is Telangana. The lowest inflation in the country is in Jammu & Kashmir, Himachal Pradesh and then Punjab.

Well, this pretty much rules out a rate cut, even a 0.25% cut on 7th June when RBI presents its Credit policy. The logical thing would be to wait and watch how the monsoon pans out and in all probability, only after it gets more clarity on rainfall that it will bring in any more rate cuts. So that’s that for those expecting June 7th to be a big bang event.

The internals of IIP - in terms of industries, 12 out of 22 industry groups in the manufacturing sector have shown positive growth during the month of March 2016 as compared to the corresponding month of the previous year (Statement II). The industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest positive growth of 36.5 percent, followed by 19.8 percent in ‘Tobacco products’ and 16.9 percent in ‘Wearing apparel; dressing and dyeing of fur’. On the other hand, the industry group Electrical machinery & apparatus n.e.c.’ has shown the highest negative growth of (-) 36.2 percent, followed by (-) 15.0 percent in ‘Food products and beverages’ and (-) 9.9 percent in ‘Publishing, printing & reproduction of recorded media’.

Some important items showing high positive growth include ‘Wood Furniture’ (77.0%), ‘Leather Garments’ (73.0%), ‘Telephone Instruments including Mobile Phone and Accessories’ (60.2%), ‘Tea’ (56.2%), ‘Transformers (small)’ (53.8%), ‘Cashew Kernels’ (31.3%), ‘Scooter and Mopeds’ (25.0%), ‘Aluminium Conductor’ (23.8%) and ‘Commercial Vehicles’ (22.2%).

Some important items that have registered high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ [(-) 77.3%], ‘Polythene Bags including HDPE & LDPE Bags’ [(-) 47.5%], ‘Cement Machinery’ [(-) 46.0%], ‘Heat Exchangers’ [(-) 39.4%], ‘H. R. Sheets’ [(-) 35.9%], ‘Ship Building and Repairs’ [(-) 35.8%], ‘Boilers’ [(-) 35.5%],Lubricating oil’ [(-) 31.8%], ‘Sugar’ [(-) 30.1%], ‘Furnace oil’ [(-) 27.2%], ‘Molasses’ [(-) 23.4%], ‘Stainless/ alloy steel’ [(-) 21.5%] and ‘Woollen Carpets’ [(-) 20.6%].

The media every time any macro economic data is announced goes on and on about rate cuts but is that alone going to help bring down rates? And also as rightly said by the RBI Governor, it is better banking practices which can bring down rates. He said that fixing legal loopholes in the financial system that helps unscrupulous promoters game the system, will do a lot more to bring down borrowing costs than monetary policy actions.

Right now, we are not looking at Rajan for mood improvement. He simply cannot provide that. We do not need any mood improvement now – we have had more than enough of that. What we really need to see now is all the talk getting transformed into action. Reforms need to take off and not get stalled in the Parliament. More than RBI, unless Govt spurs public investment in infrastructure, we could continue to juggle growth numbers by merely changing methods, changing base years, far from the actual reality. And remember mere rate cuts are not enough - unless people start buying, these cuts remain meaningless. Sentiments are tepid now and the Govt needs to ensure this does not turn negative....

Tomorrow, the results will be dominated by banks – BoB, Central Bank of India, Dena Bank, Uco Bank, Union Bank. So that will pretty much dictate the moods…