HOME > BUSINESS > Poor power production let down IIP numbers – Economist

Poor power production let down IIP numbers – Economist

The numbers are in – and they don’t paint a pretty picture of India’s economy, with growth continuing to slow and prices remaining very high.

According to “Quick Estimates” by the government, the Index of Industrial Production (IIP) declined by 2.2% in June, compared to an initial estimate of 1.6% decline in May. 

The IIP, which gives a good idea of how the industrial sector is performing, has been shrinking for two consecutive months now.

“The June 2013 IIP comes as a negative surprise since consensus estimates pegged output to decline by 1.2% during the month,” says Bhupali Gursale, economist for Angel Broking.

She pointed out that even the May number has now been revised downwards to a decline of 2.8% in industrial production, compared to the intial estimate of a fall of 1.6%.

“On the demand-side, the production data (for June) mirrored weakness across the board but was supported to some extent by consumer non-durables,” she said.

“Early indicators suggest that the IIP is likely to report a modest expansion for July 2013 owing to rebound in electricity production, pick up in exports and much lower contraction in automobile production,” Angel Broking said.

Electricity generation has been supporting the index since production in mining and manufacturing sectors has weighed on overall output in the past few months. In June, power production was flat, compared to strong growth of 6.2% in May 2013 and 8.8% in June 2012.

“Going ahead, it is likely to rebound by about 5.0%, supported by a low base,” Gursale said.

Owing to the contraction in coal, crude oil and natural gas production, the Mining sector continued to contract for the ninth consecutive month and reported a 4.1% decline in June 2013 as against a 1.1% contraction in the corresponding period of the previous year.

The Manufacturing sector contracted for the second consecutive month by 2.2% as compared to contraction of 3.6% in May 2013 and 3.2% in June 2012. 

“We believe that a sustainable growth in exports led by sharp INR depreciation and a recovery in global growth would eventually improve the outlook for the sector in the medium term,” Angel Broking said.

Consumer Durables continued to weigh heavily on the overall IIP for the third consecutive month. The production of consumer durables contracted by 10.5% during the month as compared to a 18.4% decline in the previous month and robust 9.1% growth in June 2012. 

“Going forward though, the index is likely to find support owing to low base effect setting in.”

The 5.0% growth in the consumer non-durables segment supported overall consumer goods production. The 

performance can be attributed mainly to the growth in production of wearing apparel and food and beverages. For June 2014 quarter, consumer durables production has reported a steep 12.6% de-growth in contrast with growth of 8.0% during June 2012 quarter. 

The Capital Goods index continued to reflect a weak investment climate. It showed a 6.6% contraction despite a low base as it comes on the back of a sharp 27.7% decline in production for June 2012.

Interestingly, the Consumer Price Index (CPI) inflation for July 2013 expectedly moderated to 9.6% as against 9.9% in June 2013 owing to deceleration in food as well as core inflation. 

Inflation in food articles in the CPI (accounting for almost 50% weightage in the index) has moderated, as expected, to 11% from 11.7% in the previous month, Gursale said.

Fuel inflation also decelerated to 8.4% during July 2013 as against 8.6% in the previous month. Core (non-food, non-fuel) CPI inflation has also positively trended down to 8.0% in July 2013, as against a slightly higher 8.2% in the previous month. 

“Going ahead we expect CPI inflation to moderate further since food inflation is likely to decelerate owing to the good monsoon, pick-up in sowing of kharif crops and reasonable hike in MSP prices for kharif crops,” Angel Broking said.

Also, trade data released by the Commerce Ministry for the month of July 2013 showed an 11.6% rise in exports, the highest in 18 months. Imports reported a decline of 6.2% during July 2013 as compared to 0.4% de-growth in June 2013 owing to compression in both oil and non-oil imports, especially gold.

Follow ULTRA.news