By Ruma Dubey

We might fool ourselves into thinking that things are becoming better at the ground level but the figures which came in today, probably, tell us the true story.

After the pleasant surprise of 4.7% in May, it was a shocker today to see June IIP come in at 3.4%. The markets were expecting it to come at over 5%, enthused by May numbers but clearly, the market expectations were driven more by sentiments.

The markets closed today at a jubilant level but after this unflattering IIP number, without another positive prop, we can expect a negative reaction tomorrow. Looking into the internals of the IIP, the huge growth of 23% in capital goods was more or less negated by the de-growth of 23.4% in consumer durables. The growth in electricity was as expected, pretty good with a growth of 15.7%. If in May we felt that we back on the growth track, these June numbers show that there is a lot of work yet to be done.

The fall in consumer durables is especially a telling tale as it shows that irrespective of the new Govt in place, people are worried about rising prices and the deficit monsoon. The IMD might have shown figures of the deficit coming down but surely in the month of June, there was an acute sense of unease that monsoon might play truant this year and it is probably this fear which kept them away from buying or spending any money.

Capital goods is always very volatile. From 4.5% last year, it zoomed up to 23% in one month; so does not really start celebrating this jump. In terms of industries, 15 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of June 2014 as compared to the corresponding month of the previous year. The industry group ‘Electrical machinery & apparatus n.e.c.’ has shown the highest positive growth of 69.2%, followed by 10.3% in ‘Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products’ and 9.8% on ‘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 (-) 62.9%, followed by (-) 60.5% in ‘Office, accounting & computing machinery’ and (-) 13.4% in ‘Furniture; manufacturing.

Some of the important items showing high positive growth during the current month over the same month in previous year include ‘Copper and Copper Products’ (212.2%), ‘Cable, Rubber Insulated’ (211.6%), ‘Vitamins’ (103.0%), ‘Relays, Fuses and Switchgears’ (65.0%), ‘Ayurvedic Medicaments’ (64.5%), ‘Air Conditioner (Room)’ (33.2%), ‘Stainless/ alloy Steel’ (28.8%), ‘Scooter and Mopeds’ (27.3%) and ‘Biaxially Oriented Polypropylene (BOPP) film’ (24.7%).

Some of the other important items showing high negative growth are: ‘Sugar’ [(-) 73.7%], ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 71.3%], ‘Computers’ [(-) 66.1%], ‘Aluminium Conductor’ [(-) 48.7%], ‘Wood Furniture’ [(-) 32.9%], ‘Woollen Carpets’ [(-) 31.0%], ‘Earth Moving Machinery’ [(-) 29.4%], ‘Boilers’ [(-) 26.9%], ‘Gems and Jewellery’ [(-) 26.5%] and ‘Lubricating Oil’ [(-) 25.6%].

By the time one could assimilate the IIP numbers, the CPI numbers went on to make things  more sticky – in fact went on to show why IIP numbers were sticky. This CPI for July rose higher than expected, at 7.96%, just a tad lower than the 8% mark.

These numbers once again put the pressure back on Rajan. In fact the worry now is whether we are looking at a rate hike. In fact this should ideally more pressure on the Govt because unless it gets on to actually start working on the ground level, work on easing supply constraints immediately, a rate hike from Rajan might prove to be inevitable. As Rajan had said in his recent policy, inflation should not really become a big cause of worry if handled well and that is what Jaitley needs to now start working on.

Budget or IIP, for the common man, it all boils down to cost of living, the cost of roti, kapda and makaan; except for kapda, the rest remains expensive.