IIP data comes under the scanner, yet again

As the index of industrial production (IIP) for March declined 3.5 per cent, the capital goods segment was once again the primary factor behind the fall, showing extreme volatility and contracting over 21 per cent. In 2011-12, the output of capital goods rose in five months, while it declined in seven. This has again raised doubts over the quality of IIP data, after the IIP goof in January.

Volatility in capital goods production in the previous financial year could be gauged from the fact that it expanded 38.73 per cent in June and contracted 26.4 per cent in October.

For March, sub-sectors within capital goods showed output contraction of up to 78 per cent, while some rose as much as 60 per cent. This has once again brought the issue of reliability of IIP data to the fore.

C Rangarajan, chairman, Prime Minister’s Economic Advisory Council (PMEAC), told Business Standard, “We need to re-look at the capital goods numbers, as some sub-sectors are showing a decline of 43 per cent as well.” RV Kanoria, president, Federation of Indian Chambers of Commerce and Industry, said the high negative growth of important segments like capital goods in March was in stark contrast to their positive growth in the previous month, which raised doubt over the quality of data.

The data released on Friday showed production of UPS, inverters and converters contracted 78 per cent, followed by cable and insulated rubber at 76.8 per cent, heat exchangers at 47.6 per cent and sugar machinery at 43.3 per cent. Some important capital goods items showed positive growth, such as cement machinery at 55.9 per cent, electric motors at 44.5 per cent, machine tools at 43.2 per cent and drilling equipment at 42.9 per cent. Besides capital goods, other items that recorded high negative growth are apparel at 57.2 per cent, room air conditioners at 49.4 per cent and leather garments at 34.1 per cent.

Paan masala showed positive growth of 665.5 per cent and polythene bags saw 450 per cent growth. Since paan masala does not have any seasonality factor attached to it, making analysts wonder why would the category show a dramatic rise.

Newsprint production rose 55 per cent in March.

IIP numbers are struggling to establish credibility after the goof in the data for January. The Ministry of Statistics and Programme Implementation had overestimated industrial growth by 5.7 percentage points. While the actual growth was 1.1 per cent in January, the ministry calculated it at 6.8 per cent, owing to misreporting of sugar data by the Directorate of Sugar.

Sops for labour-intensive sectors likely
Concerned at the industrial slowdown, the government would hold a meeting with industry to gauge the issues confronting it. After export numbers failed to impress, in the Foreign Trade Policy for 2012-13, slated for next month, the government may announce sops for sectors not reporting high outbound shipments, indicated Commerce & Industry Minister Anand Sharma. Labour-intensive sectors like textiles and leather recorded dismal exports in April. A day after the central bank asked exporters to keep half their future earnings in exchange earner’s accounts in rupee denomination, Sharma asked the central bank to ensure dollar availability to exporters.