>Index of industrial Production for January 2012 (CARE RESEARCH)

Overview:
Index of Industrial Production (IIP) for the month of January 2011 improved to 6.8% compared with 7.5% for the same period last fiscal. This comes on the back of strong growth in manufacturing of 8.5% which counters the low growth of 3.2% in electricity and -2.7% in mining.


Cumulative growth in FY12 in Apr- Jan 2012 stands at 4.0% (8.3%). The IIP growth for the month of December has been revised to 2.5% from the previously reported 1.8%.

IIP growth for January comes at higher than CARE’s own estimate of 3.5%. The growth of 6.8% is mainly driven by non-consumer durables segment which grew by 42.1% (92.6% growth in food products and beverages which accounts for 7.2% weight in the IIP).


Cumulative Picture: (Apr-Dec FY12 over Apr-Dec FY11)
■ The cumulative growth in the ‘mining and quarrying’ sector fell to -2.6% versus 6.3% seen for the same period last fiscal
■ Activities in the ‘manufacturing’ sector have slowed down to 4.4% from 8.9%.
■ Production in the ‘electricity’ sector has been improving with 8.8% growth compared with 5.3% seen for the same period last fiscal.



■ In the manufacturing sector, 15 out of 22 industries have shown positive growth during Apr- Jan FY12.

• ‘Food products’ (28.3%), ‘publishing, printing & reproduction of recorded media’ (24.2%) and ‘fabricated metals’ (13.8%) have registered healthy growth.
• ‘Motor vehicles’ and ‘other transport equipment’ grew by 12.1% and 14.3% respectively
• ‘Non-metallic products’ and ‘petro related products’ had moderate growth of 5.0% and 3.0% respectively.
• Electrical machinery, textile products, apparel, chemicals, rubber products, machinery, office equipment and furniture showed negative growth.

■ As per the Use-based classification, corrosion is seen in growth rates in the ‘capital goods’ (-2.8%) industry as well as the ‘intermediate goods’ (-1.0%) industry.

• Capital goods production has been affected by slowdown in infrastructure activity as well as investment which may be attributed to higher interest rates prevailing during the year.
• Basic goods grew by 5.7% for Apr-Jan FY12 compared with 6.0% for the same period last year.
• Consumer durable and consumer non-durable goods have witnessed growth of 3.9% and 10.2% respectively, with the overall growth in Consumer goods being 7.4% for Apr-Jan FY12. Growth in non-durables however, increased by 42.1% in January while that in durables was negative 6.8%.

Movers this month
Contrary to low growth registered by the manufacturing sector in the past few months, the sector has grown at a considerably high rate of 8.5%. This high growth is mainly driven by substantial growth of 92.6% in the food products and beverages and 56.1% in Publishing, printing & reproduction of recorded media industries.

Excluding these two industries, manufacturing would register a growth of negative 1.4%. This high growth can hence not be perceived as a rebound in the manufacturing sector a sit is not broad based.


Core Industries Performance
Production in core industries, which is considered as a lead indicator to overall industrial production, displayed subdued performance in January this year.

Four out of eight industries registered positive growth in the month. Cement production has seen high growth in the month of January while fertilizers performance has been stable. Industrial production for natural gas, crude oil, petro refinery and steel has displayed some lag registering negative growth in January.


How does one read these numbers?
First, based on the CSO estimates, manufacturing is to grow by 3.9% in the last quarter of the year. The present number of 8.5% does help it improve the average for the quarter given that the base effect will come in March.



Second, while the overall growth has been propped up, the fundamental problems in industry remain such as low investment and demand.


Third, the volatility in IIP growth is a concern because the December numbers have been revised upwards to 2.5% which is quite significant. Also given that the small scale sector contribution is understated, there could be some further revisions in the overall IIP numbers by March.


Fourth, so far this year there has been an anomaly between negative growth in mining and high growth in electricity. This has been reversed in January. There is concern that this may be replicated in the coming months.


Policy stance
The RBI in this financial year has raised rates by 175 bps in a bid to control inflation. Inflation is still high between 6.5-7.5% depending on the WPI or CPI. With industrial growth looking steady in January, there is no immediate need to view growth as a problem requiring attention in this policy notwithstanding the fact that growth is not broad based. This could prompt the RBI to maintain key policy rates in the March 15, 2012 Monetary Policy Review meeting.

RISH TRADER