IIP numbers trash the green shoots theory

Sept IIP at 2% while CPI inflation at 10.09%

Despite strong indications coming from core sector numbers of September 2013 released in late October 2013, IIP numbers have once again disappointed. Against an expectation of a 3.5 per cent growth, IIP numbers for September 2013 stood at 2 per cent.

The core sector numbers released on October 31, 2013 said that 8 per cent growth was recorded in September 2013, eight infrastructure industries have posted their highest growth in the last 11 months. In August 2013, the same set of sectors grew by a lower 3.7 per cent.

More than  the aggregate number, the breakdown of the number paints a grim picture. The only silver lining is the sharp rise in growth shown in the consumer non-durables which have grown by 11.3 per cent, but that was mainly on account of a lower base in the previous year.

While Electricity too has shown a 12.9 per cent growth, it too was on account of a number of factors like a lower base. Further the erratic nature of the number which shows sharp swings every month and no follow-up confirmation of the number from growth of other sectors does not give the confidence that the performance would be repeated going forward.

Manufacturing sector is barely growing. The sector posted a growth rate of 0.6 per cent in the month of September, so much for the green-shoots-seen-in-the-economy theory. The theory also received a jolt from the capital goods number which have posted a negative growth of 6.8 per cent.

A negative growth of consumer durables of 10.8 per cent and a near zero growth of consumer goods also shows that there is hardly any buying at the retail end.

These numbers along with double digit inflation rates leaves little room for the central bank to steer the economy. Food inflation at 12.56 per cent and both urban and rural inflation posting double digit numbers suggest that interest rates are unlikely to come down soon.

What the numbers suggest is that the country is on course to post a sub 5 per cent GDP growth. Nothing to be worried about, after all our government has been saying the next half will be better.