NOV IIP - FROM NEGATIVE TO POSITIVE, WILD SWINGS!
By Ruma Dubey
The November IIP numbers are volatile and that is putting things very mildly. From a negative growth in October, we now have not just a positive but a good growth at 5.9%. Such a wild swing? A five month high IIP at this juncture somehow seems unbelievable, especially when the growth was in the negative in October. A recovery at this pace?
Do you think this November number is a blip? “No” is what C Rangarajan, Chairman, PMEAC reiterates that Oct IIP numbers were a blip and what we are seeing now is a good trend catching up.
Capital goods remains consistently bad but consumer goods have come in good. Consumer non durable is also very good. So what we have is a slowdown in infra and capital goods but it is consumers who have contributed to the IIP. Consumption pattern shows demand is good. The silver lining in the capital goods is that the pace of contraction has eased.
Yet overall direction is bad, with mining and capital goods looking ominous like two black holes. But this positive NoV IIP shows that we could look forward to better numbers in Dec and not a shocker like the one we saw in Oct. This Nov number is good for the moods but that’s about it!
| PARTICULARS | Nov’11 | Oct’11 | Sept’11 | Aug ‘11 | YoY |
| IIP | 5.9% | -5.1% | 1.9% | 4.1% | 6.4% |
| Consumer Durable | 11.2% | -0.3% | 8.7% | 4.6% | 7.2% |
| Manufacturing | 6.6% | -6% | 2.1% | 4.5% | 6.5% |
| Capital Goods | -4.6% | -25.5% | -6.8% | 3.9% | 25.7% |
| Basic Goods | 6.3% | -0.1% | 4.5% | 5.4% | 5.7% |
| Mining | -4.4% | -7.2% | -5.6% | -3.4% | 6.9% |
| Electricity | 14.6% | 5.6% | 9% | 9.5% | 4.6% |
| Consumer Non Durable | 14.8% | -1.3% | -1.3% | 2.9% | -4.4% |
| Intermediate Goods | 0.2% | -4.7% | 1.5% | 1.3% | 4.3% |
The contraction in capital goods has contracted from double digit to single digit. Electricity growth of double digit along with consumer goods growth shows that despite all the negatives and not much stimulus from the Govt as such, the underlying mood is good, people have the money but they are cautious. The Govt needs to intervene to promote industrial growth because the train of growth cannot be powered by consumers alone.
What will RBI do now? Its primary concern remains inflation and this growth of Nov would have reassured RBI that it does not now need to act hastily. If Nov too had come in the negative, the pressure would have intensified on RBI to start easing the interest rates. But this IIP number of Nov now could mean that RBI will not be looking at easing rates when it presents the credit policy on 24th Jan. Clearly, it is not as much about money supply as it is about lack of any policy action. Banks are holding excess SLR to the tune of 29%. CRR cut is not expected to come. Thus at this juncture, RBI will take a pause, a full pause.
So the only good news is that we do not see any more rate hikes; the rate hike cycle is done with! The bad news – growth is pretty precarious and unless action is seen - on mining, on coal, on bringing about a mood of optimism in the country, unless structural issues are cleared, we could continue slowing down further.