By Ruma Dubey

If the Sept IIP data shocked us by showing a degrowth, October IIP came in at an unbelievable 8.2% and once again, November, as expected, slipped back to degrowth. Thankfully, it was as expected or else another positive IIP would have been very difficult to digest. Some things, even if bad are acceptable when expected.

Oct IIP was a blip, driven mainly by Diwali demand. And in Nov, it was back to business as usual and people cutting down on buying post Diwali was very much evident in the consumer durables, non-durables and intermediary goods. The view for capital goods is currently negative and reiterating the same was the degrowth of 7.7% v/s growth of 7.5% in Oct. The fall was sharper even MoM.

IIP is not about orders clocked or sales made; IIP measures production from various sectors. The weightage of IIP data is broadly divided into three segments – manufacturing (75.53%), mining & quarrying (14.15%) and electricity (10.32%). The numbers for IIP are usually released within 6 weeks after the end of the month. The figures are revised in the next and the third month based upon the revised Industrial production data furnished by the source agencies. The data is collected from Department of Industrial Policy and Promotion, Indian Bureau of Mines, Central Statistical Organization, Central Electricity Authority and 11 other agencies. 2004-2005 is considered as base year for calculation. i.e. the industrial output in 2004-2005 is considered as 100 index points. And it also takes into account micro, small and medium enterprises. Many economists say that data collection in IIP could be plagued with two problems – either data does not get collected every month and when it does get collected, it is all tallied up in one single month and thus the irrational volatility. Or else data is coming in from only a handful plants and then it is generalized for the entire sector.

With many factories closed for Diwali, which fell in Nov, manufacturing was also hit badly. Companies had most likely drawn on inventories, rather than increasing production. The sectors which showed the maximum fall were Publishing, printing and reproduction of recorded media, Office, accounting and computing machinery, wood and products of wood & cork except furniture; articles of straw & plating materials. Basically nothing of too much consequence On the other hand, sectors like electrical machinery and apparatus, luggage, handbags, saddlery, harness and footwear; tanning and dressing of leather products, radio, TV and communication equipment and apparatus were up.

Sectors, on an overall basis which have shown fall are Block Board, Newspapers, furnace Oil, PVC Pipes & Tubes, Grinding wheels, Stampings & Forgings, Razor Blades/Safety Blades, Air Conditioner (Room) which was down 37% , Tractors down 20%, also down were Drilling Equipment, Plastic Machinery incl. Moulding Machinery and Commercial Vehicles, which fell 28.3% (YoY). ’

The only good part is that maybe we are now bottoming out as the fall was not as sharp as expected. The underlying sentiment has improved since Dec and the momentum can now pick up only if RBI reduces rates on 29^th Jan. Inflation data is scheduled for Monday, 14^th Jan.