>India Economics 12-02-2009 (CITI)

India Economics

Consumer Durables Drag Dec Industrial Output Down 2% YoY

# Dec Industrial production below expectations - down 2%: Industrial production
was down -2% YoY below ours (+0.1%) as well as consensus expectations
(Bloomberg at -0.4%; Reuters +1.3%). This follows the -0.3% contraction in
Oct (which was the 1st contraction since the index was constructed in 1994)
and the 1.7% growth in Nov. Cumulatively during the current fiscal (Apr-Dec),
production slowed to 3.2% v/s 9% during the same period last year and poses
some downside risks to the CSO’s FY09 advance GDP estimate of 7.1%.
# Highlights: On a sectoral basis the contraction seen in Dec was due to
manufacturing at -2.5% while electricity and mining saw growth of 1.6% and
1% respectively. As per the use-based classification, consumer goods
contracted -2.7%, with durables down -12.8% (the steepest decline since
March03). Intermediate goods remained in negative territory for the 5th month
in a row, while capital and basic goods were up 4.2% and 1.7% respectively.

# Implications – Advancement of rate cuts; fiscal measures: While we continue to
expect the RBI to cut rates by an additional 100bps-150bps in 1H2009, the
contraction in output could advance easing. Secondly, given the upcoming
elections, the govt will be coming out with its interim budget on Monday -
Feb16 instead of a regular budget. While normally changes in taxation are not
announced in an 'interim budget' we could see the poor data being used as a
reason for additional spending/tax cuts.

# Maintain FY10 GDP estimate of 5.5%: Earlier this week, the CSO pegged FY09
GDP growth at 7.1%. This was slightly higher than our estimate of 6.8%. For
FY10, we maintain our estimate of 5.5%. This factors a contraction in exports,
a further deceleration in investment growth and a moderation in consumption.

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