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Economists expected industrial production to be subdued in June which would drag down factory output growth in the first quarter of the current financial year. This is also likely to pull down larger economic growth in the first three months of the current financial year. The index of industrial production (IIP) data is slated to be released later today.
Moody's Analytics, research and analysis arm of Moody's Corportion, has forecast the IIP to grow by 1% in June.
Industrial production contracted 1.6% in May, which resulted in just 0.1% growth in IIP in the first two months of the current financial year.
"Production contracted in May and was virtually flat through the first half of 2013. Weak domestic demand is weighing on manufacturing production, while supply-side constraints cap growth in the electricity sector. None of these restrictions are likely to abate in the second half of the year," Moody's Analytics said.
"I do not see more than 0.5% growth in industries in the first quarter. The GDP growth in the first quarter would be in the region of about 5%," Madan Sabnavis, chief economist CARE Ratings told Business Standard.
Experts believe that there is stagnation in industries.
"Looking at industrial production, one can observe that there is no industrial activity taking place. Production numbers are low and the IIP for coming months would also be negative or zero", said Madan Sabnavis, chief economist, CARE Ratings.
He also added that the capital goods and consumer goods markets are not performing well. "We have not seen anything happening in consumer or capital goods. In terms of consumer goods, demand coming from households has gone down and capital goods in terms of investment is lacklusture", said Sabnavis.
Capital goods production fell 1.5% in the first two months of the current financial year. However, the decline decelerated compared to a 15.2% plunge in capital goods production the first quarter of the previous financial year.
Consumer goods, particularly, consumer durables, also could not grow in the first two months of the current financial year. While consumer goods fell 1%, its segment--durable goods-- contracted 9.6% in these to months. Consumer non-durables, however, sustained some grwoth at 6.7% in April-May. However, here also growth fell to just 1.7% in May, 2013.
Dragged down by these two components, larger manufacturing sector, which forms an integral part of IIP, was also stagnant. "If one looks at manufacturing numbers, nothing has changed in these months. The only thing from the government's perspective is the clearing of FDI reforms, but those will take some time to turn around," said Anis Chakravarty, senior director, Delloitt India.
Manufacturing output grew just 0.1% in the first two months of the current financial year, against 0.4% in the corresponding months of the previous year.
Within IIP, it was only electricity sector that gave some semblance of growth. Electricity generation rose 5.3% in April-May of 2012-13, higher than 5.2% in the corresponding period of last year.
But, then the mining sector contracted 4.5% in these two months of 2013-14 against a fall of 1.7% in April-May, 2012-13.
The eight core sectors, which comprise 38% of IIP, grew at a snail's pace of 0.1% for June.
Economists said the infrastructure sector is looking depressing. "When we look at entire spectrum of the eight sectors, we will see that all of these have practically suffered, not one", said Chakrabarty.
All the sectors, except fertilizers performed badly in June compared to same period last year. Among them, natural gas performed the worst, showing contraction of 16.7%.
"If you look at natural gas, a lot of it is dependant on the KG basin. There is some debate on price distortion. Till that price distortion debate is sorted out, natural gas growth would not happen", added Chakrabarty.
Economists said projects are still running late and incurring cost overruns. The government has set up the Cabinet Committee on Investments (CCI) and claimed that various projects have been cleared. However, the effect of that has not come in yet. "If one looks at the projects cleared what is the level of investment which has translated into growth, one would see practically nothing. Even if investment is cleared, one will see turnaround in the medium to long run not in short term", Chakrabarty said.
However, core sector and IIP sector do not move in exact one-to-one manner. The reason is that some of the segments like electricity go through one more round of revision when IIP data comes. Besides, capital goods are too volatile and give surprising results in between. As such, exactly predicting IIP numbers are bit difficult, said economists.
With Industrial production not likely to be high in the first quarter, at least one-fifth of India's economy may not show good results. The GDP figures are likely to be released by this month-end. While farm production is expected to be good, services might not do as good. The GDP grew by 5.4% in the first quarter of 2012-13, the highest in the year. India's economy expanded by a decade low of 5% in entire 2012-13.
| Industrial Production Growth | |
| Month | Index of Industrial Production Growth (% y-o-y) |
| Apr-12 | -1.3 |
| May-12 | 2.5 |
| Jun-12 | -2 |
| Jul-12 | -0.1 |
| Aug-12 | 2 |
| Sep-12 | -0.7 |
| Oct-12 | 8.4 |
| Nov-12 | -1 |
| Dec-12 | -0.6 |
| Jan-13 | 2.4 |
| Feb-13 | 0.5 |
| Mar-13 | 3.4 |
| Apr-13 | 2.3 |
| May-13 | -1.6 |
Retail Price Inflation:
With industrial growth data, retail price inflation for the month of July will also be announced later today.
The inflation, measured by Consumer Price Index (CPI), remained quite high at 9.87% in June compared to 9.31% cent in May. Economists said that the impact of the rupee depreciation has not been quite seen on these numbers yet and these could even go up in the coming months.
With vegetables prices rising due to disruption caused by rains as well as onion prices, the inflation might remain elevated as food items have more than 45% weight in the CPI.
However, the wholesale inflation remained in comfort zone at 4.8% in June.
The core wholesale price inflation (manufactured products sans food products), which takes away temporary volatility part from the inflation, came down to a 42-month low of just 2.1% in June. This suggests that there is subdued demand in the economy. The core inflation has been falling steadily since second half of 2012-13.
However, this has more to do with supply side constrains the experts said. "The prices are low due to low global commodity prices and also the crude oil prices have been stable and the metal prices have also come down", said Sabnavis.
| Month | Consumer Price Index Inflation (% y-o-y) | Wholesale Price Index Inflation (% y-o-y) |
| Apr'12 | 10.26 | 7.50 |
| May'12 | 10.36 | 7.55 |
| Jun'12 | 9.93 | 7.58 |
| Jul'12 | 9.86 | 7.52 |
| Aug'12 | 10.03 | 8.01 |
| Sep'12 | 9.73 | 8.07 |
| Oct'12 | 9.75 | 7.32 |
| Nov'12 | 9.90 | 7.24 |
| Dec'12 | 10.56 | 7.31 |
| Jan'13 | 10.79 | 7.31 |
| Feb'13 | 10.91 | 7.28 |
| Mar'13 | 10.39 | 5.96 |
| Apr'13 | 9.39 | 4.89 |
| May'13 | 9.31 | 4.7 |
| June'13 | 9.87 | 4.86 |
Data Release Time:
Since last month, the Ministry of Statistics and Programme Implementation has been releasing data after market hours. However, commerce & industry ministry has not changed its timing of release of the data. For example, trade data for the month of July is slated to be released at 1300-1330 hrs, while wholesale price inflation comes at about 1200 hrs. Though skeptics attribute MoSPI's change of timing to low numbers, the ministry said it was done to avoid volatile impact on markets. What gives strength to critics was the RBI releasing India's current account deficit number a day in advance and that too when markets were open. Usually RBI releases this data after market hours.
