Bleak tidings

November's weak industrial production data, with factory output contracting 0.1 per cent from the preceding year, is in sharp contrast to the 8.3 per cent growth reported for October. While sharp swings in IIP numbers in recent months have become a disconcerting feature, prompting many to question the quality of the data, the perceptible drop in the November index of industrial production (IIP) print can largely be attributed to the base effect, with holidays this year evidently distorting the readings. The downturn in the November industrial output data, therefore, was largely a factor of the passing of festive demand and manufacturers possibly drawing down on inventories. The November IIP print is also a reiteration of the dismal growth in manufacturing and mining activities, along with the continuing sluggishness in the capital goods sector, widely seen as a proxy for investment activity. The manufacturing sector grew just 0.3 per cent, while capital goods was down 7.7 per cent, reiterating that the investment cycle is yet to pick up in a meaningful fashion after a brief reprieve in October. At a time when investment demand is yet to pick up and consumption is slowing at the margin, exports too have continued to disappoint, contracting for the eighth consecutive month in December, with a year-on-year decline of 1.9 per cent at $24.88 billion.

While the data sets offer a mixed picture, the common strain that may be emerging is that industrial output could be poised for a rebound. Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Friday that "this (November IIP) data does not contradict the proposition that the economy has bottomed out" and that "it now needs to move upwards". An up-tick in industrial activity is crucial for India to achieve even the modest 5.7-5.9 per cent GDP growth rate set for this fiscal, predicated largely on a rebound in industrial activity and corporate profitability in the second half of the fiscal. Headline inflation, sticky for some time now, has also been coming down, easing to 7.24 per cent in November 2012, a 10-month low.

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