Mining, electricity crucial in Nov IIP numbers

Electricity and mining sectors hold the key in keeping the Index of Industrial Production (IIP) away from the negative territory for the second consecutive month in November 2008.

Economists contacted by Business Standard expect India’s industrial output to grow marginally at less than 1 per cent if mining and electricity, which have 20 per cent weight in the IIP, register good performance. If these sectors register low growth rate, the IIP would dip, they say.

The only factor working out in favour is the low base effect, when IIP grew at a much lower 4.9 per cent in November 2007.

“Despite the continuing weakness in industrial activity, we expect the November IIP manufacturing growth rate to be near the levels of October, that is low negative to low positive. Growth, had it not been for the November 2007 growth rate boost, would have been deeply negative,” said an analysis done by Saugata Bhattacharya and Rituparna Banerjee of the Business & Economic Research group in Axis Bank.

The IIP rate had dipped by 0.4 per cent in November, for the first time since the new series for the IIP was introduced in financial year 1993-94, mainly due to poor performance of manufacturing, which has nearly 80 per cent weight in the index.

Other economists agree that the manufacturing sector, which accounts for 80 per cent of the IIP, would either post a flat growth rate, or even dip.

“We expect the IIP to be in the range of 0.8 per cent to 0.9 per cent in November,” said Soumendra Dash, chief economist, CARE Ratings.

According to Dash, growth in electricity and mining sectors, which registered 2.8 per cent and 4.4 per cent growth rate, respectively, in October 2008 may keep the IIP from dipping from the levels seen in November 2007.

“If electricity and mining fails, we would certainly see a dip in the IIP,” said DK Joshi, principal economist, Crisil Ltd, a ratings and advisory firm.

However, other economic indicators point to continuing dismal performance of the IIP, which include a dip in exports by 10 per cent. Other indicators include fall in commercial vehicles sales as well as decrease in railway freight.

“Commercial vehicles’ sales growth became negative (-36 per cent year-on-year) in October and worsened to -48 per cent in November. Cement dispatches growth has improved. Financial situation captured in the growth rate of Nifty index deteriorated; Nifty fell 51 per cent year-on-year in November. Non-oil imports slowed significantly to 5 per cent in October,” the Axis Bank note said.