Industrial Production Continues to be Slow-VRK100-13Oct2011

Industrial Production Continues

to be slow in August 2011

Rama Krishna Vadlamudi, HYDERABAD     13 October 2011 www.ramakrishnavadlamudi.blogspot.com

India’s Index of Industrial Production (IIP) for the month of August 2011 recorded 4.1 per cent growth compared to 4.5 per cent growth in the corresponding period of previous year. The IIP data which indicates the factory output in the country continues to be weak in August also. The figure for July 2011 is 3.84 per cent. The stock market shrugged off the weak data in the light of good quarterly results announced by Infosys Limited on the date the IIP data were released. Reserve Bank of India (RBI) may weigh all the macro-economic indicators before making a rate decision in its 25 October meeting on monetary policy.

The weak data for industrial production continues in the month of August 2011 also, as was the case during July 2011. While July figure was revised to 3.84 per cent (versus 3.33 per cent reported initially), the August output grew by a tepid 4.1 per cent. This indicates that the twelve repo rate hikes administered by RBI are beginning to reflect in the slowing industrial production. The cumulative growth for the period April-August 2011 stands at 5.6 per cent over the corresponding period of the previous year versus 8.7 per cent growth for April-August 2010.

The IIP numbers for the Mining, Manufacturing and Electricity sectors for the month of August 2011 recorded growth rates of -3.4 per cent, 4.5 per cent and 9.5 per cent respectively. The share of manufacturing is 75.5 per cent, Mining 14.2 per cent and Electricity 10.3 per cent in the IIP.

Among the manufacturing sector, ‘food products & beverages,’ ‘basic metals,’ and ‘motor vehicles & trailers’ are showing good positive growth. Whereas, ‘textiles,’ ‘tobacco products,’ and ‘electrical machinery’ are showing negative growth.

The ‘use-based’ classification of IIP indicates that basic goods, capital goods and intermediate goods are showing a growth rate of 5.4 per cent, 3.9 per cent and 1.3 per cent respectively. Whereas, consumer goods, consumer durables and consumer non-durables have recorded growth rates of 3.7 per cent, 4.6 per cent and 2.9 per cent respectively.

The IIP and GDP numbers as well as other indicators point to a general slowdown in the Indian economy. However, it is premature to think that RBI will change its ‘dear money’ policy unless there is concrete evidence that inflationary pressures in the economy are coming down for sure. Reserve Bank of India has been repeatedly telling that it will not be in a position to cut interest rates as long as the inflation rate remains above its ‘comfort level.’

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Notes: The Quick Estimates of Index of Industrial Production (IIP) with base 2004-05 for the month of August 2011 were released on 12 October 2011 by the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation, Government of India.

Disclaimer: The author is an investment analyst & writer and his views are personal. He has a vested interest in the stock markets and his views should be taken with a pinch of salt. His views should not be construed as investment recommendation. There is a risk of loss in equity investments. Investors need to consult their certified financial adviser before making any investment decisions.

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