JAN IIP - BAFFLING NUMBERS!
By Ruma Dubey
| PARTICULARS | Jan’12 | Dec’11 | Nov’11 | Oct’11 | Sept’11 | Aug ‘11 | YoY |
| IIP | 6.8% | 1.8% | 5.9% | -5.1% | 1.9% | 4.1% | 7.5% |
| Consumer Durable | -6.8% | 5.3% | 11.2% | -0.3% | 8.7% | 4.6% | 12.5% |
| Manufacturing | 8.5% | 1.8% | 6.6% | -6% | 2.1% | 4.5% | 8.1% |
| Capital Goods | -1.5% | -16.5% | -4.6% | -25.5% | -6.8% | 3.9% | 5.3% |
| Basic Goods | 1.6% | 4% | 6.3% | -0.1% | 4.5% | 5.4% | 7.7% |
| Mining | -2.7% | -3.7% | -4.4% | -7.2% | -5.6% | -3.4% | 1.7% |
| Electricity | 3.2% | 9.1% | 14.6% | 5.6% | 9% | 9.5% | 10.5% |
| Cons Non Durable | 42.1% | 13.4% | 14.8% | -1.3% | -1.3% | 2.9% | 5% |
| Intermediate Goods | -3.2% | -2.8% | 0.2% | -4.7% | 1.5% | 1.3% | 7.4% |
Baffling! To begin with, the expectations were pretty low, around 2%. But the number coming at 6.8% left one with a feeling of complete disbelief. And this Jan IIP at 6.8% did make everyone wonder about the integrity and quality of IIP data. Such volatility in the IIP numbers made one wonder about relying on these numbers. This data does give some signal but if there is so much fluctuation, one cannot help but wonder how this Jan IIP did come through.
One would have expected pent up demand to have come up in the capital goods sector, which in turn should have, ideally, pushed up the IIP to this level. Capital goods continue to remain in the negative but is the best after Aug 2011. Surprisingly, it is Consumer non-durable which has pushed up the numbers. This sector has a weightage of 20% on the IIP and this sector has shown a growth of over 42% and this means, this alone has added around 8, giving a boost to the manufacturing.
A break-up of this shows data which makes one wonder about how policy decisions can be based on such inane date. 13 out of the 22 industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth during the month of January 2012 as compared to the corresponding month of the previous year. ‘Food Products and Beverages’ has shown the highest growth of 92.6%, followed by 56.1% in ‘Publishing, Printing and Reproduction of Recorded Media’ and 29.9% in ‘Medical, precision & optical instruments, watches and clocks’. On the other hand, the industry group ‘Electrical machinery & apparatus’ has shown a negative growth of 30.5% followed by 14.1% in ‘Office Accounting and Computing Machinery’ and 13.8% in ‘Radio, TV and Communication Equipment and Apparatus. One cannot help but wonder about the overall composition of the IIP data.
Trend of investment continues to remain slow and this is one data, which has remained consistent in all the IIP data. Part of slowdown in the investment cycle is due to higher interest rates and higher costs. Smaller projects are coming into fruition rather than bigger projects. Pent up demand is there and wherever it can be met, mainly through smaller projects, it is getting done. But unless larger projects take off, we cannot expect investments to pick up.
Oil is hovering around $125/barrel and this means that rate cuts are sure to get delayed till April for sure. Everything now depends on the Budget of 16th March. If there are a lot of positives, then we could see a rate cut in April or else, in all likelihood, it will happen much later. It all depends on how the Govt tackles the fiscal deficit. The ball in entirely in the court of the Govt and further RBI action will thus depend on the Govt. RBI has more than done its bits, it is now the turn of the Govt.