JULY IIP - THANK GOD IT'S A FRIDAY!
By Ruma Dubey
The July IIP numbers came in much, much below expectations. Lower numbers were widely anticipated but IIP for the month coming in at 0.5% v/s estimate of 1.2 to1.5% was truly shocking.
The IIP numbers were much better in the first half of current fiscal and that can be attributed to lower base effect. And this today-up-tomorrow-down number shows the wide volatility in the IIP, throwing up mixed signals. Manufacturing growth remained in the negative and capital goods also slipped into a degrowth of -3.8% v/s growth of a whopping 23% last month.
Closely on the heels of this sobering set of IIP number, the inflation numbers were also nothing to cheer about. Retail or CPI came in for A at 7.8% v/s 7.96% in July, with food inflation continuing to lead. Vegetable prices led at 15.15% v/s 16.88% (MoM) and food inflation was at 9.42% v/s 9.36%. Rural inflation continued to rule above 8% at 8.35% v/s 8.45% and urban inflation was at 7.04% v/s 7.42%.
In terms of IIP internals, 12 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of July 2014 on YoY. The industry group ‘Other transport equipment’ has shown the highest positive growth of 17.1%, followed by 12.3% in ‘Basic metals’ and 11.8% in ‘Other non-metallic mineral products’. On the other hand, the industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest negative growth of (-) 58.3%, followed by (-) 26.0% in ‘Office, accounting & computing machinery’ and (-) 17.4% in ‘Furniture; manufacturing.
And in terms of item-wise breakup, those showing high positive growth during the current month over the same month in previous year include ‘Stainless/ alloy steel’ (108.7%), ‘Relays, Fuses and Switchgears’ (72.9%), ‘Vitamins’ (68.9%), ‘Air Conditioner (Room)’ (58.3%), ‘Plastic Machinery Incl. Moulding Machinery’ (45.9%)’, ‘Ayurvedic Medicaments’ (39.0%), ‘Fruit Pulp’ (37.8%), ‘Scooter and Mopeds’ (35.0%), ‘Fasteners (Excl. Zip-Fasteners)’ (28.2%), ‘Colour TV Sets’ (27.3%), ‘Three-Wheelers (including passenger & goods carrier)’ (22.2%) and ‘Biaxially Oriented Polypropylene (BOPP) film’ (21.3%).
While items showing negative growth are:‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 67.2%], ‘Sugar’[(-) 60.3%], ‘Aluminium Conductor’ [(-) 46.1%], ‘Computers’ [(-) 36.9%], ‘Generator/ Alternator’ [(-) 36.9%], ‘Sacking’ [(-) 36.0%], ‘Gems and Jewellery’ [(-) 32.2%], ‘Sugar Machinery’ [(-) 31.1%], ‘Wood Furniture’ [(-) 30.3%] and ‘Cigarettes’ [(-) 23.8%].
Thus with poor growth and higher inflation, RBI clearly will be forced to take a pause during its meet at the end of this month. The Governor is likely to keep the rates status quo on 30th Sept, cutting rates is ruled out; we only have to hope that there is no rate hike!
Consumer good continues to be a laggard. This means that Q1 GDP growth was largely driven by exports and the internals of IIP show that domestic demand remains patchy. But a wait on policy action seems most likely as crude prices have been down, monsoon has done well and rabi crop is expected to be good. These factors together, plus given the seasonal factor, we could see some moderation in the CPI rates in coming few months. Also with festivals round the corner, demand, especially consumer goods is expected to go up. Rate hike at this juncture, given the global economic conditions with Europe slowing down, seems farfetched and in all likelihood, we might see a prolonged pause as far as interest rate is concerned.
Clearly, the onus is on the Govt to work on correcting systemic errors which are also adding on the inflationary pressures. The Govt’s Porject Management group has cleared 175 projects worth some $102 billion but nothing as of now is expected to take off as 122 of these – 29 from coal sector and 93 from power sector are dependent on coal. And currently both these sectors are put on an indefinite hold as Supreme Court is yet to announce its decision on the coal block allocation. Only once this huge uncertainty is cleared can one expect the projects to start. Till then the judiciary continues to hold the economy at ransom.
Currently, optimism rules sentiments despite lower growth numbers as these IIP numbers, many feel are the bitter fruits we continue to taste, sown by the UPA Govt. So instead of pondering on the negatives, lets look ahead and hope that we could see a completely new IIP picture in August 2015.
