All eyes on IIP data for July

Robust merchandise exports and moderate core sector numbers to help

Industrial production numbers for the month will be keenly watched for later today amid a poll forecasting a contraction for the straight third month. If industrial output indeed falls, this would dampen the hopes for an economic recovery from the second quarter.

A Reuters poll of 22 economists showed that the industrial output will likely shrink by 0.8% in July.

In June, the industrial output contracted 2.2% against a 2% fall in June 2012. This was a three-month low figure. In May, the industrial output had contracted 2.8% against 2.5% growth in May last year.

Any contraction would be bit surprising as the eight core sector industries, comprising more than one-third of the Index of Industrial Production (IIP), grew at a four-month high of 3.1% of in July. Besides, merchandise exports, which would be reflected in IIP data, rose to 18-month high of 11.6% in July.

Also, the numbers required to push IIP to growth are not substantial. The index had fallen to 167.1 points in July 2012 from 168 points in June 2012. The index stood at 164.3 points in June 2013. So, it requires just a 2.9-point increase in the index compared to June 2013 to catapult it to positive numbers. If the index doesnot gather that much steam, it would be clear that there are huge structural problems in the Indian economy at the moment.

According to analysts, the first month of the second quarter could be crucial as it will set the tone for the rest of the months.

In the first quarter of this financial year, the IIP fell 1.1% against a decline of 0.2% in the corresponding period of 2012-13. It played a crucial role in pulling down larger economic growth to a four-year low of 4.4% in the first quarter of the current financial year.

The Purchasing Managers' Index (PMI) for manufacturing in July stood at 50.1 points, reflecting stagnation and signalling a subdued growth in this month. Manufacturing comprises the largest share of over 75% of IIP. However, experts say that PMI and IIP should not be compared as the former is a forward looking data and the latter reflects performance in past.

Month	Jun-12	Jul-12	Aug-12	Sep-12	Oct-12	Nov-12	Dec-12	Jan-13	Feb-13	Mar-13	April-13	May-13	June-13
% change y-o-y	-2	-0.1	2	-0.7	8.4	-1	-0.6	2.4	0.5	3.4	1.9	-1.6	-2.2

Source: Ministry of Commerce And Industry