November IIP done, all eyes once again on RBI

The November Index of Industrial Production (IIP ) print has come in somewhat along expected lines. IIP contracted by 0.1 percent for the month, thanks to a base effect where holidays this year skewed the readings. The IIP figure for November, of course, is in sharp contrast to a much higher-than-expected final print of 8.3 percent recorded for October.

[caption id=“attachment_584715” align=“alignleft” width=“380”]  However, one can’t read too much into the readings just yet, since typically the holidays during these months often tend to affect the figures. Reuters[/caption]

However, one can’t read too much into the readings just yet, since typically the holidays during these months often tend to affect the figures.

But if one were to take some signals from the November IIP number, it will clearly be that whichever way one looks at it-half empty or half full-the economy is still on slippery ground, with supply side constraints remaining, investment flows at a low ebb and retail inflation still sticky.

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Clearly, it is still a tad early to conclude whether indeed there are ‘green shoots’ emerging in the economy or whether we can slip back into a slower growth phase.

Consider some figures. The manufacturing sector grew only 0.3 percent in November compared with a year ago, while capital goods proved a major dampener, falling 7.7 percent. Between April and November, industrial production grew a modest one percent.

Reactions from analysts on the November print have also been mixed. “No doubt the November numbers showed moderation as the previous month’s number was an aberration in light of restocking by manufacturers on account of the festive demand. However, the degree of contraction was lower than my expectation-providing some proof, maybe, of growth having bottomed out. I was personally pleased to see consumer goods number being better than expected as it indicates a floor to the consumption demand in the economy,” said Indranil Pan, chief economist at Kotak Mahindra Bank

With industrial production not showing any definite signs of a comeback, corporate India is still quite pessimistic, despite the government’s attempts to fast-track the reforms process since September 2012. In an interview to CNBC-TV18, however, Prime Minister’s Economic Advisory Committee chairman C Rangarajan sounded moderately optimistic that growth and investments would pick up in the remaining months of FY13, and said the December inflation reading would be crucial for how things will pan out in the future.

Inflation, which has been sticky for some time now, fell to 7.24 percent in November 2012, a 10-month low, coming as a breather for policymakers, but retail inflation continued to be a worry for the Reserve Bank of India. Core inflation, however, eased. With the latest industrial output numbers unable to provide any clear medium-term signal, all eyes will now be on the December inflation number and what it means for policy action from the RBI front.

The central bank has been hinting at easing rates from January to bolster sagging growth, which came in at 5.3 percent in the second quarter of FY13. A yawning current account deficit has added to the government’s woes.

A section of analysts feel there is a case for a rate cut on 29 January, when RBI meets to review its monetary policy for the fiscal. However, few are willing to stick their necks out on whether this would be the beginning of a clear monetary easing phase, given the state of the economy.

While policymakers say India could end the fiscal with a growth rate of anywhere between 5.5 percent and 6 percent given some positive signs of late and a strong push towards reform and investment, global rating agencies are still skeptical. Analysts are cautiously optimistic about FY14, if a few positive factors come into play.

“Better-than-expected agricultural production for the year, growing wages in both the rural and also in the urban segment and some help from the interest rate cycle are expected to help India’s growth dynamics going forward. Further, with the positive tone set by the ECB, one could be expecting some upward momentum in the global growth, thereby leading to some uptick in the export segment. Overall, I hesitate to look at any V-shaped trajectory of recovery for India in the year ahead but build in an expectation of 6.2 percent GDP growth in FY14, up from 5.6 percent expected for the full year FY13,” said Pan