IIP expected to see muted growth in January, say economists

While citing the difficulty in ascertaining a wildly swinging industrial production data, economists suggest that industrial output in January may see a muted growth.

Industrial output had fallen 0.4 per cent in December from a year earlier, driven down by a contraction in consumer and capital goods production attributed to the demonetisation drive.

"It has become hard to predict the Index of Industrial Production (IIP) since the old series of data doesn't capture the full scale of the industrial sector in the country," Economist D K Joshi said.

However, while a small rise is expected owing to recovery in some parts of the economy, the pain will linger on especially in sectors like real estate and jewellery, among others, he added. Also, the IIP had shown a poorer annual performance so far in the current financial year, after a long time, he reminded.

The cumulative growth of the country's factory output for the April-December period was 0.3 per cent, much lower as compared to the cumulative growth of 3.2 per cent during the corresponding period of the last financial year.

Manufacturing, which constitutes three-fourth of the index feel by 2 per cent as compared to the 5.5 per cent rise in November. Electricity generation was up by 6.3 per cent as against a 9 per cent rise in November. Similarly, mining rose by 5.2 per cent in December as against a 4 per cent rise in the previous month.

However, back in December, the index had managed to shock economists and businesses alike whereby, it had belied all expectations of huge adverse impact of demonetisation, rising to a 13-month high of 5.7 per cent in November against a contraction of 1.8 per cent in the previous month.

Economists had blamed the high figures on the base year not being updated, arguing the data represented a "false positive".

While a similar situation may not arise in January, mild growth may see a comeback in the IIP, Economist Devendra Pant said.

This is because the IIP reflects the corporate sector which was not as badly hit as the informal parts of the industry as well as households, he added.

However, growth will remain muted owing to goods being piled up at the wholeseller stage since consumer spending still hasn't picked up to pre-demonetization levels, he added. This is expected to dent the performance of manufacturers.

The IIP Index is expected to be released later in the day.