IIP numbers are a surprise

Notwithstanding the gloomy prognosis, IIP numbers for February 2013 are a surprise, with the Index registering a 0.6% growth. Even though the Index actually registered a decline in Y-O-Y growth in Feb from the earlier month (2.4% in Jane '13), the Y-O-Y growth in capital goods at use-based level at 9.5% was unexpected. At this rate, the weighted contribution of capital goods to IIP growth was the highest since, Feb 2012. Based purely on past trends / base and sequential effects (recall Mar '12 - Sep '12, capital goods registered a continuous de-growth and March numbers are always higher M-o-M), the overall IIP growth now will be better than earlier.

Apart from capital goods, all other numbers were disappointing. At use-based level, basic growth registered a de-growth in Feb '13, the first time since Feb '09 (Intermediate goods too slipped into negative territory). At the sectoral level, mining sector registered a de-growth at 8.1% and electricity sector growth declined by 3.2% (the first time since the new IIP series was introduced in FY2005.). Consumer sector performance also turned tepid with a visible slowdown in both durables and non-durables.

Going forward, even though overall business situation is expected to turn better, but it will still be at a much slower pace. The could be however some respite, with inflation numbers (CPI, for example) expected to tread downwards. On the whole, a long road to recovery awaits us!

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The author is senior fellow, ICRIER. The views are personal