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None yet celebrating rise in numbers

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& analysts say things could be tougher after Dec.

The jump in November’s Index of Industrial Production (IIP) from minus 4.9 to 5.7 was a big relief, but both industrialists and analysts are unsure if the good run would continue.

While some industrialists were quick to nudge the Reserve Bank of India (RBI) to cut rates, most doubted whether it would happen as soon as January 24 (when the central bank announces its next quarterly review of monetary policy).

Venugopal Dhoot, chairman & managing director, Videocon Industries, said, “This is the time to act. The numbers will keep going up from here, while inflation will come down further. If does not act now, it is an opportunity wasted.”

Economists said it was too soon to celebrate, as the overall weakness in industrial production (IP) still exists. “Despite the jump in IP, we do not see any meaningful change in the trend in industrial production.  On a seasonally adjusted annual rate basis, the trend in industrial production remains negative, at minus 7.2 per cent. Key sub-segments — basic, capital, intermediate — recorded weak prints in November, a development that does not necessarily bode well for production in the coming months,” said Barclays Capital’s chief India economist, Siddhartha Sanyal.

Capital goods production, at minus 4.6 per cent year-on-year (yoy), was negative for the third month running. Intermediate goods, generally regarded as a leading indicator of headline IP, reverted to positive territory, but continues to show very little growth, at 0.2 per cent over the year. “Other lead indicators (auto sales, liquidity and interest rates) do not suggest any meaningful recovery in IP in the near term. The upside surprise in the current print was generated largely by consumer goods — durables and non-durables — which rose by 11.2 per cent and 14.8 per cent, year on year, respectively,” added Sanyal.  

What worried M S Unnikrishnan, managing director and CEO, Thermax, was that though the consumption pattern was improving, the mining and capital goods industry have seen a negative impact, implying that capacities were not being added. “The capital goods index will continue to be volatile for some time, as ground-level order finalisations have not started improving,” added Unnikrishnan.

There are some positives, though. There was a sense of relief among many on the broad base of the surge. The IIP, excluding capital goods, grew a good 7.8 per cent year-on-year vis a vis minus 0.5 per cent in October. Even capital goods grew 25.1 per cent on a sequential basis (month-on-month) and mining activity, which had seen a lull on most part of the year, expanded on a sequential basis.

“Going forward, next month’s data should also remain supported, as indicated by the improvement in PMI (Purchasing Managers’ Index) data for December, higher excise tax collection and a favourable base effect in December,” said Upasna Bhardwaj, economist, ING Vysya Bank.

“Though the November numbers are positive, it is important to maintain consistency of industrial output growth. A focus on revival of industrial production through an implementable road map for the new manufacturing policy is something to look forward to,” said Anis Chakravarty, director, Deloitte Haskins & Sells.

Though December numbers may continue to provide good news from the IIP, most said  RBI was unlikely to take the plunge immediately by cutting rates on January 14. “If IIP numbers continue to go up consistently, one could say the economy was on a recovery path. I doubt that RBI will begin reducing rate immediately,” said H M Bharuka, managing director, Kansai Nerolac Paints.

Given the sombre mood in India Inc and analysts, despite inflation in the negative and a positive IIP, no wonder the stock market took guidance from the third ‘I’, the Infosys’ results.

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