Month-on-month stats show industrial output shrank 4 times till Oct in 2011-12.
If the country’s overall industrial production has been sluggish, and even contracted 5.1 per cent in October 2011, the deep-focus picture is, in fact, still grimmer. Statistical measurement on a sequential basis — instead of yearly — will show the magnitude of the gloom.
The index of industrial production (IIP) has contracted four times till October this fiscal month-on-month. This means production in the secondary sector has sagged sequentially. For the remaining three months, IIP fell flat in one month (May), and rose in two months.
Ironically, while year-on-year IIP showed a contraction at 5.1 per cent in October, month-on-month index revealed a smaller decline at 3.1 per cent that month. Thus, after former chief statisitician Pronab Sen, it is now Leif Eskesen — HSBC’s chief economist for India and Asean — who has cast doubts over the IIP data.
Commenting on HSBC purchasing managers’ index for manufacturing, which showed robust activity in the month of December, Eskesen said the momentum in the sector “is not quite as weak as the official and more dated IIP data would suggest”.
PMI for manufacturing grew at a robust 54.2 points in December, showing a rebound led by higher demand from both domestic and foreign clients. In fact, even in October, PMI had only expanded — at 52 points. This, when the IIP had shown a contraction. Even so, PMI is month-on-month comparision — and it could be compared with manufacturing data in IIP, if also assess official data sequentially.
A look solely at manufacturing component, which has a weight of 75.5 per cent in IIP, will show a 5.8 per cent decline in the October month-on-month basis. Sequentially, manufacturing already contracted 5 times till October this fiscal. The outlook is bleak for a year-on-year basis as well, owing to high base in December and March. The index for October stood at 165.9 points — the lowest since August 2010.
Looking at traditional year-on-year figures, the Prime Minister’s Economic Advisory Council says it was capital goods that showed a major decline on the manufacturing front, driving the growth rate for the IIP to a negative territory. “There are indications that it was due to the lumps, as some companies may not have reported,” notes C Rangarajan, chairman of the council.
Chief statistician TCA Anant indicates a revision in the October number, but that will not mean the emergence of a positive number. “As many as 85 per cent of the entities respond when the numbers are released,” he points out. “In the first revision, about 93 per cent of the entities respond, but the chances of these numbers making a huge difference is bleak.”
As for capital goods production, it had declined a massive 25.5 per cent on a yearly basis, and saw a 20.8 per cent contraction sequentially in October. According to Rangarajan, manufacturing will pick up in the second half of this fiscal, on the back of improvement in core industries in November besides mining and coal production.
As per IIP, mining contracted 7.2 per cent on a year-on-year basis in October. However, the trend is not as bad on a month-on-month basis. It grew a robust 9.68 per cent.
The constraints in mining have had a bearing on manufacturing. Yet, the index of 8 core industries showed a 4.9 per cent increase in coal output in November on a year-on-year basis, which is the highest growth since March 2010.
On a sequential basis, it grew a vigorous 20.18 per cent in November. This will surely have a positive impact on manufacturing. At 151.5 points points, coal index was the highest since March this year, when it was 189.7 points.
However, before that, coal production had declined three months in a row till October. Since mining sector has showed considerable improvement and core industry for November has shown high production year-on-year, Rangarajan says this will be reflected in the manufacturing data.
Arun Singh, senior economist, Dun and Bradstreet notes that manufacturing will only move up from now on, keeping aside the base effect — “unless there is a deterrent on the international front, which may cause a disturbance”. The economy is not as bad as projected by the IIP numbers, he adds.
