IIP, export figures show economy in good shape

Things seem to be going India’s way. At least that’s what the latest economic numbers show.

While industrial growth surged 7.3 per cent in March after staying below five per cent for four months prior to that, food inflation fell to an 18-month low of 7.7 per cent during the week ended April 30. Exports rose 34 per cent to $23.9 billion in April, while imports were up only 14.1 per cent to $32.8 billion. Even the taxman had something to cheer, as gross direct tax collections went up by 15 per cent in April.

But industry and economists are in no mood to celebrate yet. High industrial growth in one month may not represent a reversal of weak factory output in the long term, they say.

“These weekly and monthly cycles of bad and good news must be treated without over-reaction. The good news that we have got this week, both on price and industrial production fronts, must not be over-interpreted, just as we must not get overly pessimistic when the economy does badly during a week or a month,” said Finance Minister Pranab Mukherjee

The markets were not enthused either. Sensex shed 249.17 points today and closed at 18,335.79 points.

Economists warn that food inflation is still high and non-food and global commodity prices are exerting pressure on manufactured products too.

“Sustained high non-food primary prices are creating cost-push inflationary conditions in the manufacturing sector,” said the finance minister.

As such, the central bank was not expected to ease its stance, economists said.

Export growth was up year-on-year but fell sequentially from 44 per cent in March. “March is always a peak month. I am not worried,” said Commerce Secretary Rahul Khullar.

India’s merchandise exports were $246 billion, up an impressive 37.55 per cent, in the previous financial year.

Industrial growth, as shown by the Index of Industrial Production (IIP), was slower in March compared to 15.5 per cent a year ago. However, given the subdued numbers in months since November 2010, the latest performance is quite robust.

Growth in manufacturing, with 80 per cent weight in IIP, fell by half to 7.9 per cent over 16.4 per cent a year ago, but was much higher than just 3.62 per cent in February.

Capital goods was up 12.9 per cent. It had shrunk in the previous three months. It was up 36 per cent a year ago.

Among others, passenger cars drove growth, an official statement said. Passenger car production grew 33.57 per cent in March to 2.56 lakh units, industry figures showed.

However, the growth of consumer durables slowed to 12.3 per cent from over 23 per cent a month ago.

“Our regression model shows a negative impact of high interest rates on production of consumer durables,” said YES Bank Chief Economist Shubhada Rao.

For 2010-11, industrial growth stood at 7.8 per cent compared to 10.5 per cent a year ago. This is slightly lower than the 8.15 per cent pegged in advance gross domestic product (GDP) estimates. As such, economists say the 2010-11 GDP growth will not sharply vary from the 8.6 per cent estimated by the Central Statistical Organisation.

One may ask what has given industrial growth such a push in March. “Nobody has an answer to that. IIP numbers are too volatile. Good numbers in one month do not indicate a trend. The numbers should be interpreted with caution. Underline trend shows weakening growth,” said Crisil Chief Eocnomist D K Joshi.

Industry chamber Ficci also did not seem to be too upbeat on industrial growth. “Growth in manufacturing is going to slow in the coming months because commercial banks have raised interest rates further,”said Ficci Director General Rajiv Kumar.

The new IIP numbers, with 2004-05 as the base year, will start coming from the next month, and that may end the volatility debate. The current base year is 1993-94.