IIP blip an aberration: Analysts

The low industrial production figure for October may indeed turn out to be a blip and may have less to do with a slowdown in economy.

It now appears that the less-than-expected 6.2 per cent rate of growth in October was due to Diwali, which saw several holidays and most of the festival shopping happens 1-2 months prior to the festival month.

The stock markets fell by over 3 per cent on Tuesday fearing that the figures may be due to a possible slowdown.

Last year, Diwali was in November and there was a similar dip with the IIP figure slowing to 6.9 per cent during the month compared with the 8.5 per cent growth achieved in October 2005.

"The slowdown in IIP numbers during the Diwali month is actually nothing new, if you look at the figures in recent years. The big sales push in consumer durables and non-durable goods happens one month before Diwali, and during the festival month there is a fall due to holidays and end of festival shopping," said Nilesh Doshi, head (research) of Techno Shares & Stocks.

As per the data released on Tuesday, the demand for consumer durables and non-durables in the festival month dropped to 0.5 per cent and -0.4 per cent. It should also be noted that the infrastructure sector grew by a strong 9 per cent compared with 7.4 per cent in October 2005.

"Every year, the Diwali month shows a dip in the IIP numbers," said Doshi. In fact, there is more good news. Due to the low base in November last year, the IIP figure for last month is likely to show a very rosy picture.

"Clearly, the low base of last year would have a big positive impact for the industrial production numbers for November 2006," said Riyaz Ahmed Khan, macro-economist with CMIE, said.

Similarly, the growth numbers for October showed it was slower than expected, analysts said the higher base for year-on-year may have also contributed for the lower growth numbers this year.

"The slow growth was due to a much higher base as IIP had grown by about 9 per cent in October 2005. We see the slower growth in IIP for October 2006 as an aberration and not as any sign of a slowdown," said Keshyap Jhaveri of Emkay Share.