 "December IIP: Experts divided over revival prospects")
The prospects of an industrial recovery in December, set to be made clear by the release of Index of Industrial Production (IIP) figures on Friday, have pitted experts against each other. While some believe the December data will be pulled down due to the Chennai floods, slow investment revival, others are hopeful of strong growth terming the previous month to be a statistical aberration.
The IIP had dipped for the first time in the past 13 months in November, after registering a five-year high rise of 9.8% in October. Economists had warned then to treat it as a statistical aberration since the expansion was on a low base.
For the December data, India Ratings and Research (Ind-Ra) has said figures will continue to remain fragile and the factory output data is expected to be lacklustre, growing at a nominal 0.8%. Devendra Pant, chief economist at India Ratings & Research, added that a disparity in growth across use-based sectors shows industrial recovery is still uneven and investment revival will take time.
Incidentally, the dip of 3.2% in November represented the sharpest margin by which industrial output had fallen in the past four years. However, notwithstanding this, the cumulative industrial growth for April-November 2015 over the corresponding period of the previous year stands at 3.9%, compared with the 2.5% growth registered in the same period in 2014-15.
The ravaging floods in Tamil Nadu, which particularly hit the automobile manufacturing sector, the continuing sluggishness in rural demand and contracting exports are also expected to have their toll on December, ICRA said. Incidentally, passenger cars were one of the items which had contributed the most to the contraction in the index in the previous month as well.
On the other hand, according to the global financial services firm Nomura, the previous contraction in industrial production was significantly below expectations and the December industrial production growth should rebound.
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Sharp contraction in factory output is just an "aberration" and underlying industrial growth is still positive, Nomura has said in a research note, adding that the country is expected to clock a GDP growth of 7.8% in 2016.
“Given rising external headwinds, the industrial recovery is likely to remain gradual. Still, we expect India's GDP (market prices) growth to rise to 7.8% in 2016 from 7.3% in 2015 " it said in a research note.
Since part of the November dip is recognised by experts to have been on account of a shift in the festive calendar, there is hope of course correction by the data in December.
Among the sub-sectors, manufacturing, which constitutes three-fourths of the index, fell 4.4% in November after a staggering growth of 10.6% in October.
However, over the entire April-November period of FY16, the sector grew at 3.9%, up from 1.5% in the year-ago period. Seventeen out of the top 22 products within the manufacturing sector showed negative growth, as compared to the same number of products exhibiting positive growth in the previous month of October.
Ind-Ra believes barring consumer non-durables; all other use based sectors will witness low single digit growth in December 2015, pointing to the marginal 0.9% growth in eight core industries in December 2015 that comprise almost 38% of the weight of items included in the IIP.