DEC IIP AND JAN CPI - MORE REASONS FOR PROMPT POLICY ACTION

By Ruma Dubey

The trend was just like what we saw in November – contracting IIP and rising CPI. But this time around in December’15, the contraction was at least not as pronounced as that in November. IIP showed a degrowth of 1.3% v/s the degrowth of 3.2% (MoM).

CPI for January showed a very marginal rise from 5.61% to 5.69% (MoM) but most worrisome, food inflation is on the rise – up from 6.4% to 6.85%.

These numbers are very much in line with expectations but that does not take away the fact that industrial growth is sagging. Growth is hurting and we can the evidence of this all around us. In this context it therefore comes as a complete surprise to now look at the 7.4% GDP for Q3 and the optimistic estimations for the quarter ahead. How will that happen? When CPI is rising, with summer round the corner, surely we are looking some more pain ahead.

In terms of industries, ten out of the twenty two industry groups in the manufacturing sector have shown negative growth during the month of December 2015 (YoY). The industry group ‘Electrical machinery & apparatus n.e.c.’ has shown the highest negative growth of (-) 44.9%, followed by (-) 10.7% in ‘Publishing, printing & reproduction of recorded media’ and (-) 8.2% in ‘Tobacco Products’. On the other hand, the industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest positive growth of 82%, followed by 17.5% in ‘Office, accounting & computing machinery’ and 16.6% in ‘Furniture.

Some important items showing high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’  [(-) 85.2%], ‘Heat Exchangers’ [(-) 68.8%], ‘Cement Machinery’ [(-) 60.2%], ‘Soyabean oil’ [(-) 59.0%], ‘Polythene Bags including HDPE & LDPE Bags’ [(-) 53.9%], ‘Grinding Wheels’ [(-) 37.4%], ‘Ayurvedic Medicaments’ [(-) 24.4%], ‘Boilers’ [(-) 22.7%] and ‘Sponge Iron’ [(-) 22.5%].  

Some other important items that have registered high positive growth include ‘Woollen Carpets’ (184.1%), ‘Telephone Instruments including Mobile Phone and Accessories’ (141.1%), ‘Di Ammonium Phosphate (DAP)’ (46.8%), ‘Transformers (small)’ (38.8%), ‘Wood Furniture’ (36.9%), ‘Paraxylene’ (32.3%), ‘Commercial Vehicles’ (28.7%), ‘Gems and Jewellery’ (27.1%), ‘PVC Pipes and Tubes’ (24.6%) and  ‘Polypropylene (including co-polymer)’ (22.2%).

How do we get corporate confidence up? That has to be the biggest question and not whether or not RBI will reduce or increase rates. RBI has been doing its job very well, with absolute diligence but the laggard causing this failure is obviously the Govt.  Very real supply constraints have developed like in infra, mainly land acquisitions which does not require big bang reforms. The Q3 numbers of India Inc have been one of the worst till date.

Globally, things are slowly but surely improving but currently our domestic issues are more taxing. So we can no longer blame it all on China. The Govt needs to wake up and realize that we have major domestic issues and if these are not addressed as soon as possible, along with global factors, the issues could manifest into a long protracted period of pain. Mere rhetorics on TV by Finance Minister will tantamount to nothing unless followed up with prompt policy actions to boost the domestic demand. And as such, Mr.Jaitley did not really announce anything enthusing, so we are back to the rupee and disappointing markets.

If we need to look at the positive then we have to say that maybe we are getting into a phase of consolidation. Over the next few months, at least for six more months, growth will be sluggish and in the lower single digit numbers. Balance sheets are stretched to the limit and there are very high levels of NPAs, the ongoing cleanup shows us exactly this. Thus expecting things to change overnight or even in the immediate short run would be naïve.