JULY IIP - FLASH IN THE PAN?
| PARTICULARS |
| July’13 | June’13 | May’13 | April’13 | March’13 | Feb’13 | Jan’13 | Dec’12 | Nov’12 | YoY | |||||||
| IIP |
| 2.6% | -2.2% | -1.6% | 2% | 2.5% | 0.6% | 2.4% | -0.6% | -0.1% | -0.1% | |||||||
| Cons Durable |
|
| -9.3% | -10.5% | -10.4% | -8.3% | -4.5% | -2.7% | -0.9% | -8.2% | 1.9% | 0.8% | ||||||
| Manufacturing |
| 3% | -3.2% | -2% | 2.8% | 3.2% | 2.2% | 1.1% | -0.7% | 0.3% | 0% | |||||||
| Capital Goods |
| 15.6% | -6.6% | -2.7% | 1% | 6.9% | 9.5% | -1.8% | -0.9% | -7.7% | -5.8% | |||||||
| Basic Goods |
| 1.7% | -1.9% | -0.4% | 1.3% | 2.6% | -1.8% | 3.4% | 2.6% | 1.7% | 1% | |||||||
| Mining |
| -2.3% | -4.1% | -5.7% | -3% | -2.9% | -8.1% | -2.1% | -4% | -5.5% | -3.5% | |||||||
| Electricity |
| 5.2% | 0 | 6.2% | 0.7% | 3.5% | -3.2% | 6.4% | 5.2% | 2.4% | 2.8% | |||||||
| Cons Non Durbl |
| 6.8% | 5% | 1.7% | 12.3% | 6.5% | 2.9% | 5.3% | -1.4% | 0.3% | 0.6% | |||||||
| Interm Goods |
| 2.4% | 1.1 | 1.5% | 2.4% | -0.2% | -0.7% | -2.5% | -0.1% | -1.1% | 0.1% |
By Ruma Dubey
First the July Consumer Price Index for August came in at 9.52% v/s 9.64% in July and 9.87% in June. This gave some solace to the heart that at least there was some containment in this inflation; marginal albeit an improvement.
That set expectations going that July IIP could come in much better than expected and might actually show a growth rather than a contraction. And it did! July IIP came in at 2.6% and one had to first validate the number to believe that it was indeed the right IIP figure.
Manufacturing which has a 80% weightage in the IIP number did well with a growth of 3% but Capital Goods, showing a growth of 15.6% v/s degrowth of 6.6% in June was too volatile and cannot really be taken as an indicator of any improvement. Most analysts do not take into consideration capital goods at all as it simply cannot be trusted given the lumpy basket of goods it comprises of. Electricity has a 10% weightage and that has shown a growth of over 5%. Consumer goods story is led by rural consumption and less by urban growth. With a good monsoon, we could only see an improvement in this trend.
So all along we went on worrying about the falling rupee but this growth of July is essentially led by exports only. Export items – leather, apparel have all done well. Though this is good news, one cannot help but wonder how this growth came in at all, given the fact that PMI for July had come in at Purchasing 50.1 points. Yes, PMI is forward looking while IIP is about past data, yet so much discrepancy between the two does make one wonder about the accuracy of these numbers, whether it is the right benchmark for basing all other economic decisions.
The big question is whether this is sustainable. Export growth is good, auto sales was good mainly due to lower base effect and we hope to see the same trend continue. At least on the export front we hope that figures next month too would come in at the same level because if it was the falling rupee which helped boost July IIP, then in August the rupee had depreciated further and applying the same logic, we should see better numbers in August too.
The items which have shown the maximum positive growth are electrical machinery & apparatus, followed by apparel, dressing and dyeing of fur, luggage, handbags, saddlery, harness and footwear, Cashew Kernels, Purified Terephthalic Acid, Vitamins, Ayurvedic Medicaments, Cable, Rubber Insulated, Ship Building & Repairs. Leather is also in the positive while items showing negative growth are radio, TV and communication equipment & apparatus, grinding Wheels, boilers, ACs,earth Moving Machinery, sugar machinery, transformers (Small), generator/ Alternator, telephone Instruments (incl. Mobile Phones & Accessories) and Gems and Jewellery, which was down over 20%.
Rupee has taken center stage and it will remain the leading hero in the next few days to come, till some semblance of stability returns to the rupee. For now, there is an uneasy calm on the Syria front but we need to now keep a watch on the FOMC meet scheduled for 18th Sept and then the Credit policy on 20th Sept. The FOMC meet is expected to usher in the QE tapering timeline and quantum and all moves of RBI and the Finance ministry will be post the QE tapering news. But a rate cut at this juncture, despite the contained CPI and growth in July IIP, will not happen.
Thanks to this one man messiah – Raghuram Rajan, currently moods are a bit better yet it does not look like a sustainable faith back in the governance. Our macro worries continue to remain and just the arrival of Rajan cannot magically wish it all away. It is good that some optimism is back in the system but to keep it going, increase the positivism, follow up action will surely be required. Markets are expected to react postively to this news but not overtly as all eyes will be on 18th Sept and QE tapering.