12.12.15

A High Five from IIP figures



Industrial growth rocketed to a five-year high in October, riding a festive-season-led boom in purchases of consumer goods, providing evidence that the economy may finally be picking up pace, although part of the spurt is due to a favourable base effect.
As measured by the Index of Industrial Production (IIP), output surged 9.8% in October, the fastest since October 2010 and much higher than the upwardly revised 3.8% in September and the expectation of around 7.5%.
The high industrial growth marks a strong start to the third quarter after data released last month showed the economy expanded 7.4% in the July-September period, an improvement over 7% reported in the first quarter.
The numbers will provide some cheer to markets worried over the logjam in Parliament that has stalled crucial legislation such as the goods and services tax (GST).
The government welcomed the rise in IIP but cautioned against reading too much into it. “It's a high number, it's a good number, it's an encouraging number, but one has to be a little careful in interpreting all monthly numbers, especially this one, because there is Diwali effect in this one,“ said chief economic advisor Arvind Subramanian.
This year Diwali was in November as opposed to October in 2014. That would have resulted in greater production in October this year. The favourable base effect, negative growth of 2.7% last October, also magnified this year's number. “Hope this continues but never should we read too much into month-to-month numbers,“ Subramanian added.
Car sales rose 10.4% in November, indicating some demand support in the coming months as well. Experts concurred that the situation was not as good as the data showed, but things were certainly getting better.
“This growth has come on the back of a low base effect and increase in spending and production due to Diwali and it can't be replicated going ahead because there is no major pickup in corporate sector activity,“ said CARE Ratings chief economist Madan Sabnavis. “However, this is a sign of recovery and not really surprising.“
Following the strong growth, CARE has revised the full-year IIP growth guidance to 4-5% from the earlier outlook of 3-4% though it is still sticking to its GDP forecast of 7.5-7.6% growth.

No comments: