By Ruma Dubey

If the Sept IIP data shocked us by showing a degrowth, this month, in October, IIP came in at an unbelievable 8.2% as against a widely expected IIP of around 4.2%.

This can be clearly blamed on Diwali. Last year, Diwali was in October and hence one saw stocking in Sept and usually, the month of Diwali, kind of tapers off. Thus it is more of a base effect on a YoY. But having said that, how does one then explain the MoM jump? Purely on companies pumping up more activity in anticipation of demand picking up in November.

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.

Well, irrespective of the problems, this is the data which we have to work on and more importantly, what RBI also uses. And while on RBI, this 8.2% number for October will in no way mean that it will now rethink its stance. This number actually means that growth is good despite inflation. And the CPI data which came in back-to-back with the Oct IIP data was not very encouraging. The combined CPI for November was at 9.9% v/s 9.75% in October. Thus inflation continues to remain a concern.

The coming months could remain sticky as far as inflation goes as car companies have already started announcing rate hikes, effective Jan 2013. And auto numbers in November, the festive month were not good. In terms of production, 1,646,495 vehicles were made in Nov’12, down 9% YoY. And sales for the month grew marginally by 1.79% (YoY). This does not bode too well for the IIP numbers for November.

This month, the biggest jump was in consumer goods and capital goods, which after seven months was back in the positive at 7.5%. But those on the ground, in the capital goods industry say that they are surprised to see this number as things are not very good on the ground. Credit offtake is good but orders have been stagnating. They expect November to be bad and things could see some pick up only in Dec as companies will be pushing for the quarter ending.

Thus based on these Oct numbers alone, it would be naïve to rework the IIP for the fiscal. One needs to wait and see the Nov numbers and only then will we get a clear picture. And RBI will sit tight on the rates when it announces the policy on 18^th Dec.