JAN IIP - ANOTHER MONTH OF DEGROWTH

By Ruma Dubey

November. December and now January. Three consecutive months where the IIP has shown a degrowth or decline. In Nov we saw a degrowth, the sharpest at 3.2%. The fall improved a bit to 1.3% in December and now in January, the decline is at -1.5%.

Capital goods was volatile as usual showing contraction at -20.4% v/s -19.7% (MoM). Consumer goods came in at 0% v/s 2.8%; does that mean that there was no growth at all? Electricity and intermediate goods were the only ones to do better. Manufacturing showed a dismal contraction at -2.8%.

In terms of industries, 10 out of 22 in the manufacturing sector have shown negative growth during the month of January 2016 as compared to the corresponding month of the previous year (Statement II). The industry group ‘Electrical machinery & apparatus has shown the highest negative growth of (-) 50.3% and others to follow are Publishing, printing & reproduction of recorded media, Medical, precision & optical instruments, watches and clocks’. On the other hand, the industry group ‘Office, accounting & computing machinery’ has shown the highest positive growth of 41.02% followed by ‘Radio, TV and communication equipment & apparatus’ and ‘Furniture; manufacturing. Really, when we look at these industries, we cannot help but wonder what and where it is used so much to move the entire manufacturing sector so much, like electrical machinery and apparatus or office machinery? Furniture?

Some important items showing high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ [(-) 87.8%], ‘Aluminium Foils’ [(-) 65.0%], ‘Polythene Bags including HDPE & LDPE Bags’ [(-) 51.6%], ‘Grinding Wheels’ [(-) 35.1%], ‘Antibiotics & its preparations’ [(-) 26.5%], ‘Purified terephthalic acid’ [(-) 24.7%] and ‘Boilers’ [(-) 21.8%].

Some other important items that have registered high positive growth include ‘Wood Furniture’ (66.8%), ‘Ship Building & Repairs’ (55.5%), ‘Woollen Carpets’ (45.0%), ‘Polypropylene (including co-polymer)’ (37.8%), ‘Paraxylene’ (37.7%), ‘Propylene’ (32.8%), ‘Telephone Instruments including Mobile Phone and Accessories’ (26.6%) and ‘Steel Structures’ (25.4%).

In the previous month, there was the reason of Chennai floods; so what was the reason for a degrowth in January? Next month, for Feb, we could see the effect of the Jat agitation. But all these are mere excuses because if the economy is robust, these events would have been counted as a very small blip. But currently because things are so slow and down, these events have a bigger than deserved impact.

The ECB brought down its interest rates down to 0% from 0.05% yesterday but this did not have too much of an effect on the Indian markets here as we are more aligned to what happens in US. And that data – US Fed interest rate meet is scheduled for 17 March, post midnight. So that is what the market will now look forward to.

Post the Budget, it was expected that RBI would reduce the rates, maybe with a few hours. But its been almost two weeks and we are yet to see anything from there. Maybe today’s degrowth, for the third consecutive month could prompt RBI into action? Growth is hurting and liquidity is an issue. Yes, with summer coming in, inflation could once again raise its head, especially food inflation. Yet, this balance of growth v/s inflation needs to be struck. Hope Rajan obliges…it will help psychologically.