The listless markets of the morning finally got some reason for cheer, some sense of direction, some reason to move. The much awaited IIP figures were released and as was expected, it was good. Good when compared with the figures of August 08’ but indicating that recovery is a long way off when compared to the earlier year’s growth.
Index of Industrial Production for September grew by 4.8% compared to 1.3% in the previous month but lower than 6.98% on a YoY. Manufacturing which accounts for two-thirds of the IIP rose 4.8% against 7.45% on a YoY. Capital goods were up 18.8% as against 20.9% growth last year. Mining was up at 5.7% as against 4.9% on a YoY. Consumer durables production reported a robust growth at 13.1% as against a fall of 7.3% last year.
The August Industrial Production figure has been revised marginally upwards at 1.4% from 1.3% in August. Albeit marginal, it’s at least upwards. Hanging on any small straw in this bad time is welcome.
After all this number crunching, what is the emerging writing on the wall? Undoubtedly, the growth rates still show signs of pain and it would take a while to get out of the woods. Due to the oncoming festival season, industries usually stock up inventories and hence the figures in September were more or less on the expected lines. In October too, nothing untoward or a negative growth is expected, it would be more or less flat. But November would be a different story and that too a painful story. With many companies cutting down on production and shutting down factories to cut down on the piled up inventory to lack of demand, November IIP figures would be tough. In the entire second half of the current fiscal, IIP is expected to show an average growth at 2.5-3%.
Right now, there is an overall slowdown, The auto sector, realty, steel, cement, all are now showing signs of a slowdown. Though the RBI has taken to infuse some liquidity back in to the system, more rates cuts are expected to help revive the economy. Tight money situation is pinching the common man on the street and demand has taken a beating – be it automobiles, homes or even consumer durables. The season of Diwali has not been as exuberant for the industry as it had been expected. The news of India’s exports plunging to a five year low in October, merchandise exports dipped 15% and slipped into negative territory during October 2008 compared to the same month in 2007. The government expects the situation to continue or even deteriorate in the coming months. Labour-intensive sectors like textiles, garments, handicrafts, certain segments of leather and gems & jewellery are the ones, which have been hit the most by the slowdown in the West. Resultant job-cuts are only further expected to impact the IIP figures.
The only way to kickstart the economy, apart from reducing interest rates is by accelerating spending on building roads, ports, utilities and other infrastructure facilities. As our Prime Minister states, “expanding investment in infrastructure can play an important counter-cyclical role”. But till that happens, the coming months, especially Q3, will remain tough.