New IIP from Jan; to reflect better picture

The government is likely to come out with a more representative data on industrial production from January next year that would include about 100 new items, while excluding the obsolete ones.

"The December data is expected to come out on January 12, 2011, for which the new series of index of industrial production (IIP) would be released," an official told.

The new series would be more representative and will have more items in the rejigged basket.

Besides, it will take 2004-05 as the base year that will reflect industrial scenario better than the base of 1993-94 used currently.

"The industry ministry is waiting for Planning Commission's opinion. They have some issues that will be sorted out soon. The new series will then be approved by Committee of Secretaries," the official added.

Currently, IIP basket has about 350 items for calculating the monthly factory output figures. The new series would be more representative and would constitute over 500 products, the official said.

It is also expected to do away with obsolete items and add those products which have entered the markets in recent years. The official, however, did not divulge the details of new products and the old ones which will be deleted.

Industrial growth slowed down to 5.6 percent in August from 10.6 percent in the same month of the previous fiscal.

IIP data has been often criticised for not catching up with the times and providing archaic figures, compared to the ones provided by other agencies like Centre for Monitoring Indian Economy (CMIE).

According to industry body Ficci there is a strong momentum in industrial growth and it is expected to expand by 9 percent in the current financial year.

The government has recently rolled out a new wholesale price-based index for measuring inflation.

IIP growth dips to 5.6% in Aug

Industrial output in August grew at the slowest pace in 15 months at 5.6 percent, nearly half of last year, disappointing the government that was betting on domestic consumption to drive the economy.

Manufacturing sector, which accounts for 80 percent of the factory ouput numbers and a key indicator of consumer demand, saw growth slip to 5.9 percent from 10.6 per cent in August, 2009.

"(The trend is) a little disappointing. Let us see how it fares in annualised terms," Finance Minister Pranab Mukherjee said in his comments on the sharp fall in industrial output growth.

Growth in capital goods -- used by the manufacturing segment -- was a negative 2.6 percent in August compared to a 9.2 expansion in the year-ago period.

The poor showing drew immediate calls from the industry against any further increase in key policy rates by the Reserve Bank, which is slated to review its monetary policy on November two.

The RBI has increased policy rates five times this year to cool inflation, following which the rate for its key short-term lending (repo) stands at 6 per cent and borrowing (reverse repo) at 5 percent.

India Inc believes the deceleration was owing to the tight monetary policy stance that has pushed up interest rates for corporates, as well as for retail customers, most of whom rely on loans or credit to buy auto or other consumer durables.

The disappointing industrial output numbers triggered a huge sale on the bourses, as investors booked profits, pulling down the benchmark Sensex by nearly 225 points in intra-day trade. The losses were curtailed to 137 points at close.

Mukherjee, though disappointed, asserted that the "Indian economy is on the path of robust growth led by increased investment and capital inflows, stronger industrial output and rising aggregate demand."

The Finance Minister expects annual industrial growth to be around 12-13 percent, which could push economic growth to 8.5 percent or more. After over 9 percent growth for three years till 2007-08, GDP expansion slipped to 6.7 percent in 2008-09 post the global financial crisis.

The last time factory output growth was slower was in May 2009 (2.7 percent).

Mining sector output decelerated to 7 percent from 11 percent, electricity generation to 1 per cent from 10.6 percent.

"...the RBI should not raise policy rates any further as it could have a negative impact on consumer demand as well as corporate investment and thereby slowdown economic growth," CII said in a statement.

Industry chamber Ficci too said any further hike in interest rates could impact consumer durables and automotive sector.

"Negative growth in key sectors like capital goods, apparels...is indeed a cause of concern and with appreciation in Rupee and hardening of interest rates, the growth of manufacturing sector may be significantly affected," Ficci secretary general Amit Mitra said.

The central bank will have to draw a balance between the need to check prices, as inflation is still high at 8.5 percent, and push up economic growth.

Commenting on the IIP numbers, RBI Governor D Subbarao said, "We will study (IIP numbers). I cannot make a comment (just yet)."

The only sector that showed a positive trend in August was consumer durables which improved to 26.5 percent from 24.7 percent in August last fiscal.

Further, July IIP was revised upwards to 15.2 percent from 13.8 percent in the provisional estimates.

Finance Secretary Ashok Chawla said, "It (the trend) is purely a cyclical movement. Sometimes it goes up, sometimes (it) goes down...We need to watch."

On decline in capital goods production, India's chief statistician TCA Anant said, "It is very difficult to predict a trend based on month-on-month number. Capital goods production always comes with a lag and is difficult to say that there is any slowdown.

Manufacturing growth is good on the broader trend. This kind of variation takes place."

Consumer non-durables, mainly fast moving consumer goods (FMCG), recorded a negative growth of 1.2 percent, as against expansion of 6.1 percent in the same month last year.

Of the 17 industry groups, as many as 14 have shown positive growth during the month of August.

Meanwhile, the industrial expansion figure for July was revised upwards to 15.2 percent from the earlier estimates of 13.8 percent.

Industrial growth for the first five months of this fiscal stood at 10.6 percent in comparison to 5.9 percent growth in the same period a year ago.

According to Standard Chartered Bank economist, Anubhuti Sahay, "GDP growth and industrial output for the fiscal would be in line with projection...going forward industrial output is expected to moderate due to high base effect."

Industrial growth slides to 13-month low

After months of rapid double digit growth, the Indian industry seems to be cooling off as industrial growth slipped into single digits in June. The fall in industrial production was because of a combination of statistics and a slight moderation in the pace of growth.

Leading industry lobbies, however, voiced no worries and said the drop in production to single digit was due to a high base effect.

'The fall in industrial production was on expected lines as it largely reflects a higher base in the same period last year,' said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII).

India's industrial production grew at a much slower rate of 7.1 per cent in June, compared to 11.5 per cent in the previous month. Manufacturing output rose 7.3 per cent while mining and electricity grew at 9.5 per cent and 3.5 per cent respectively.

While a high base effect was expected to weigh on the index of industrial production this month, the data came in towards the lower end of expectations leaving policy makers disappointed.

Finance Minister Pranab Mukherjee said industrial growth of 7.1 per cent in June, was below his expectations and it could have been better.

"I would say no if its 8.5% GDP growth then industrial growth should be faster than that," said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The disappointment came in from the capital goods sector where output grew by just over 9 per cent sharply below the 34 per cent growth seen in May.

Growth in consumer durables growth also slowed marginally over last month but remained at a healthy 27.4 per cent.

However, economists feel that a slight moderation in industrial growth may continue over the next few months.

"Global demand coming off, domestic supply side constraints and adverse base effect are all pointing towards a moderation in IIP growth going forward as well. 6-8 per cent is the rough range where IIP growth rate will continue over the next 6 months or so,” said Sonal Varma, an economist with Nomura.

The slip in industrial growth may not do much to change the perspective of policymakers. With the reserve bank maintaining that inflation remains a key concern, more hikes in interest rates still seem inevitable.