 "January IIP likely to contract, but core sectors to show growth")
The prospects of an industrial recovery in January, set to be made clear by the release of Index of Industrial Production (IIP) figures on Friday, seem low on account of slow rise in manufacturing growth and the recent Jat agitation in Haryana.
IIP had dipped for the second consecutive month in December, going down by 1.3%, after a 3.2% contraction in the previous month. The Chennai floods and slow investment revival were cited as the chief cause by economists.
Among the sub-sectors, manufacturing, which constitutes roughly three-fourths of the index, fell by 2.4% in December after a contraction of 4.4% in November. But over the entire April to December period in the current financial year, the sector has grown at 3.1%, up from 1.8% growth in 2014-15 over the same period.
According to a Reuters poll of 38 economists, India's industrial output is expected to contract for a third straight month in January. It also indicated that consumer price index (CPI), which measures the retail inflation in the economy, may ease marginally because of falling food prices, an important component of the consumer basket.
However, the eight core sectors forming 38% of the entire industrial output, cumulatively grew at 2.9% in January 2016, not a significant growth but still the highest in three months, said India Ratings, a research and rating agency in a statement. It has also stated IIP growth in January will remain subdued.
“The capital goods sector has witnessed negative growth in the last two months. The growth prospects of the sector are unlikely to improve in January 2016 due to a strong base effect. However, similar to the previous few months, the consumer durables sector will continue to perform well," it added.
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Another major hurdle is the recent Jat agitation that unfolded in Haryana. According to the PHD Chamber of Commerce and Industry, the loss on account of the stir is likely to be Rs 34,000 crore, with at least half of this across Punjab, Himachal Pradesh, and Rajasthan.
The impact of the agitation on the IIP though, is likely to be limited to the automobile and automobile ancillaries segment of the index.
Aditi Nayar, senior economist at ICRA, said, “The recent disruption in parts of Haryana resulted in some loss of man-days, which would have a temporary impact on the manufacturing growth in February 2016. Moreover, the impact may be limited to certain sub-sectors such as automobiles and auto ancillaries."
Motor vehicles, trailers and semi-trailers and other transport equipment together account for 5.8% of the IIP.
A probable estimate of production loss could be calculated by looking at the segment numbers during November and December. This was when Chennai, a major automobile manufacturing hub, was first hit by heavy rains and then floods. Though the two situations aren't comparable, a look at the segment's performance could provide some indication as to how much production could have been hit in February.
Data show the motor vehicles, trailers & semi-trailers segment contracted by 6.4% in November when heavy rains brought economic activity in Tamil Nadu to a standstill. But the segment bounced back, growing an astonishing 11.5% in December. Growth over the two-month period averaging a mere two% suggests that there is plenty of room on the downside.
Out of the top 22 products within manufacturing, 12 showed negative growth down from 17 in the previous month.
In 2015, (January - December), IIP growth was 3.3% compared to 1.8% in the same period of 2014.