All eyes on IIP to trace early signs of recovery

Analysts are eagerly waiting for the Index of Industrial Production (IIP) data for December 2012, which will be released tomorrow, to see if there are any green shoots of recovery in the economy.

However, most economists believe the industrial growth will remain muted in December due to last year’s high base effect.

The first two months of the October-December 2012 quarter gave mixed signals. This is because October was a pre-Diwali month, showing an over eight per cent growth in industrial production year-on-year, while the post-Diwali November showed a contraction of 0.1 per cent.

The output from the eight core infrastructure sectors of the economy comprising 38 per cent of industrial production recorded a 2.6 per cent growth for December, which is higher than 1.6 per cent in November, but way below 6.6 per cent in October.

Even to show a flat growth in December, the IIP is required to jump 13 points from November. It is so because December had a high base of 180.3 points compared to 167.5 points in November. In November, industrial production contracted 0.1 per cent with the index standing at 167.3 points.

D K Joshi, chief economist at CRISIL, said he expects a muted growth for December. However, he did not point to any specific range.

Siddharth Shankar of Kassa Financial Services projected that the industrial output will continue to contract in December.

Madan Sabnavis, chief economist at CARE Ratings, said the industrial output will witness a modest growth of up to 2.7 per cent. This is based on the assumption that December being the last month of the festival season, consumption would have gone up. Economists remained unanimous that there would not be much improvement in the capital goods output. “The positive growth will be in basic and consumer goods,” said Sabnavis. However, according to Shankar, consumer durables will also show weak output.

“We might see a slight uptrend in manufacturing, but again it would be minimal. If the numbers that I predict are true, we are nowhere near an uptrend and whatever bounce we are having is purely liquidity driven,” Shankar added.

With a cumulative contraction of 11.1 per cent from April to November 2012, capital goods went into positive territory only once — in October— in the current financial year.

The government’s expectation that growth would get a boost after December — one of the prime reasons for disputing advance estimates by the Central Statistics Office (CSO) —may still hold true at least statistically. This is because in January and February 2012, the index stood at 177.6 points and 175.2 points, respectively to again rise to 187.6 points in March 2012. In advance estimates, CSO had pegged India’s economic growth at 5 per cent for this financial year, which the finance ministry disputed.