IIP blues: Industry is slowing; no it's not; or maybe it is...

Is the economy slowing down or is it not? Well, whether you want to see the glass as half-full or half-empty, the government has given you two sets of numbers on the index of industrial production (IIP) to choose from. The old numbers indicate a slowdown; the new IIP numbers do not quite do so. Or do they?

The new IIP, with 2004-05 as the base year as against the outdated base of 1993-94 in the old one, shows that industry grew just 6.3% in April, down from 7.3% in March (with the old IIP). On the new base, the fall is steeper from March’s 8.8%.

According to the Central Statistical Organisation’s new set of IIP numbers for last year the slowdown in growth never quite happened.

For one, average 2010-11 growth was higher at 8.2% compared to the 7.8% reported with the old base. This difference is probably more psychological, since the actual difference is only 0.4%, but real nevertheless.

The catch is in the monthly figures.

According to the earlier estimates, as many as five months of 2010-11 had seen sub-5% growth. A number which is now down to one month. And it gets more surreal. December, which showed the lowest monthly growth of 2.6%, has, according to the new IIP series, been revised up to as much as 8.1% (see Table 1).

But this again is only half the story.

Going strictly by the 2004-05 base, which has made many additions to the industries under coverage and shifted the weightage somewhat, growth in April is “disturbing”, to use the Finance Minister’s words.

At 6.3%, this is the lowest growth in five months on account of soft growth across mining, manufacturing and electricity, though mining is the weakest piece as per the classification on the basis of economic activity (see Table 2).

A breakup across manufacturing industries reveals that the new addition of ‘Office, accounting and computing machinery’ has shown the strongest growth of as much as 96.5% in April 2011, while ‘Furniture, manufacturing NEC’ has recorded the steepest decline of 15%. What’s NEC? We’ll tell you when we figure that out.

According to the use-based classification of industries, the two pillars on which growth is seen to stand - investment and consumption - show a softening. While capital goods growth slowed down to 14.5% (from 35.5% in April 2010), consumer goods slowed down to a low of 2.9% (from 13.8% in April 2010). Basic goods, which has the largest weight of 35% as per this category, saved the day by growing at 7.3%, while intermediate goods were weak at 3.4%.

Basic goods are things like raw materials that are used to produce other goods like steel and coal, while intermediate goods are semi-manufactures like textiles or manufactured goods like machinery which are used to make other goods.

So what do we make of the numbers as a whole?

This is truly a unique scenario, where the figures can justifiably be argued both ways. A slowdown? Yes, at the monthly level. Good growth? Yes, too, looking at the larger picture in 2010-11. In contrast, if the old base had been continued, we would have had a confirmed slowdown.

But the optimistic scenario painted by the new IIP also brings a negative connotation. It can give the Reserve Bank the necessary ammunition to show that the IIP has not quite slowed down, and so it might not be a good idea to stop raising interest rates since inflation is still running riot.

On the other hand, it will be argued that the latest IIP figures only corroborate what we are seeing in the larger economy - a slowing GDP, slackening auto sales and now a lower industry number.

In sum, with this new twist to the tale, the verdict is not quite in yet.