JUNE IIP – GST LEAVES A TELLING EFFECT

By Ruma Dubey

Almost like a precursor to the IIP data for June, the Economic Survey Volume II, which was tabled during the day in the Parliament today, probably for the first time, held a pessimistic view on growth forecast. It has taken into account a downward risk emerging to the earlier estimated GDP growth of 6.75% to 7.50% for FY18.

On inflation and CPI, the Survey stated that it expects CPI to be below 4% by end of FY18. It also pointed some serious fingers at the RBI. It stated that RBI had overestimated the CPI by above 100 basis points in six of 14 quarters but at the same time, is of the opinion that the current repo rates are 25-75 bps above neutral rates, indicating that there is room for further reduction in rates.

This news, plus earnings weighed heavy on the markets today which saw a 300 points slump. TVS Motor, Hindalco, SBI, Bank of Baroda, Sun Pharma numbers grossly disappointed and the market reacted accordingly.

And it in this backdrop that the IIP for June came in today evening and as expected, being the month ahead of the 1st July GST rollout, with majority companies destocking, it left a telling effect.
June IIP contracted at 0.1% vs 1.7% in May, the biggest decline in two years. Manufacturing remained a drag – it showed a degrowth of -0.4%

15 out of the 23 industry groups in the manufacturing sector have shown negative growth during the month of June 2017 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of electrical equipment’ has shown the highest negative growth of (-) 20.1% followed by (-) 11.1% in ‘Manufacture of fabricated metal products, except machinery and equipment’ and (-) 10.5% in ‘Printing and reproduction of recorded media’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest positive growth of 28.1% followed by 19.2% in ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ and 11.7% in ‘Manufacture of furniture’.

There were more sectors which showed a degrowth than a growth – Primary goods was down -0.2%, Capital goods was down -6.8%, Intermediate goods fell -0.6% and Consumer Durables contracted -2.1%.

Some important items that have registered high negative growth include ‘Water purification apparatus’ [(-) 68.4%], ‘Shelled cashew kernel, whether or not processed/ roasted/ salted’ [(-) 63.6%], ‘Electrical apparatus for switching or protecting electrical circuits (e.g switchgear, circuit breakers/switches, control/ meter panel)’ [(-) 48.6%], ‘Plastic jars, bottles and containers’              [(-) 48.1%], ‘Kerosene’ [(-) 39.0%], ‘Printing machinery’ [(-) 35.6%], ‘Tooth Paste’ [(-) 33.0%], ‘Air filters’ [(-) 28.9%], ‘Vaccine for veterinary medicine’ [(-) 28.8%] and ‘Cement Clinkers’ [(-) 22.2%].

Some important items showing high positive growth during the current month over the same month in previous year include ‘Digestive enzymes and antacids (incl. PPI drugs)’ (67.8%), ‘Construction machine/ equipment (incl. bull-dozers and road rollers)’ (36.8%), ‘Jewellery of gold (studded with stones or not)’ (34.7%), ‘Cut & Polished Diamonds’ (31.1%), ‘Axle’ (29.5%),’ Meters (electric and non-electric)’ (28.9%), ‘Pipes, tubes & casing of steel/iron’ (24.9%) and  ‘Aluminium Billets/ingots’ (22.6%).

Today’s market correction is a healthy sign – we cannot have a relentless, only one-sided move. And yes, June’s IIP was expected to be down, so big surprises there. What we need to now watch out for in July IIP and hope that the Govt too starts taking proactive and aggressive steps to help growth and create employment.