January IIP (index of industrial production) showed a 7.5 percent growth in factory output numbers. That looks good compared with the December number of 7.1 percent and 3.5 percent recorded in the same month previous year. Coupled with a drop in retail inflation to 4.44 percent in February from 5.07 percent in January, the twin set of macroeconomic data adds to the optimism of the economic revival seen beginning the second quarter and uptick in consumer spending since December sustaining after a long lull phase. Mainly, this time the driver of the growth is consumption.
After a long gap, consumption is returning in a big way to support growth. Growth in consumer durables posted a growth of 8 percent in January from 1.5 percent in December, if the IIP data offers any clue. Growth in non-durables didn’t come very impressive at 10.5 percent. Last month this component was 16.6 percent but is holding good for the last three months. This is happening after a long gap since demonetisation-resulted cash crunch spoiled the consumption momentum in the economy. Capital goods, which indicate investment activity, continue with a good show for the last two months. So, that’s the good news. If these numbers depict the actual situation on the ground, there are hopes of a sustained revival in the formal sector.
But, still the caution here is that IIP is no good to assess the signals in the informal sector. This is where both demonetisation and GST played havoc for a good long period destroying supply chains and causing major job losses. Revival can take longer time in the informal segments. But there are certain aspects of it where there isn’t a convincing explanation and curious to see. One such component is Digestive enzymes and antacids (incl. PPI drugs). This particular item has consistently topped the list of five highest contributors to the IIP for several months now.
For instance, in January, antacids emerged as the top contributor to IIP contributing 1.1375 with a weight of 0.22 percent. This component has grown 32 percent in January. Antacids have topped the list of high positive contributors followed by diesel, electricity, sugar and two-wheelers. In December, antacids topped the list of contributors to IIP with a contribution of 2.25 followed by cement, electricity and diesel in that order.
In November antacids contributed 2.5497 to the IIP. This makes one curious that how can antacids continue to be the dominant factor in the factory output consistently? Does it really mean Indians are consuming or exporting so much of antacids to make this component the driving factor of the industrial growth? At least three economists with leading organisations this writer spoke to didn’t have a convincing answer.
If one keeps the mystery of antacids aside and looks at the January IIP data, it’s all positive news. There is growth revival seen in the macro numbers, which can reflect in the fourth quarter GDP figures as well.
(Data contribution by Kishor Kadam)
Updated Date: Mar 13, 2018 13:49 PM