IIP IS LEAST OF OUR WORRIES RIGHT NOW!

By Ruma Dubey

There was so much breaking news this week that this IIP news of today was like a whimper. Demonetization, Trump and today evening’s news of independent directors supporting Cyrus Mistry  on the Board of Tata Steel, while Nusli Wadia also extending his support for Mistry, with Tata Sons looking at ousting him from the Tata Chemicals Board.  And over and above all this, the stock markets crashed by a huge 700 points Whew! It was most certainly a very newsy day and week, keeping the entire nation and world on tenterhooks.

In this background, though the IIP data does look like an advertisement break in the middle of a thrilling soap, this is very important economic data. In fact the IIP for September suggests that we could soon be looking at a contraction in the industrial production data.

The IIP for Sept’16 came in today evening at 0.7%, recovering from August’16 contraction of -0.7%. The silver lining here is that the IIP for October could be much better as it will reflect the festival season demand.  But after that, the demonetization effect is sure to show up, all over the economy.

The economists, while lauding the ban on 500 and 1000 rupee notes are worried about the effect it could have on the economy. Household spending is sure to drop as there will be a cash crunch. Farmers too will have to cut down on spending – this is the harvest season and they would have received money – mostly all in cash and today, they too might be facing a shortage. Thus in November and in December, we could see a serious effect on the demand scenario and consequently an effect on the IIP.

The internals of the IIP shows that the manufacturing sector showed a small 0.9% rise v/s -0.2% (MoM). This could be on account of ensuing festival season for which production would have been stepped up. Mining production contracted further  and capital goods contracted for 11 successive months and it shows that the capacity addition by companies has only been on the decline.

Some important items that have registered high positive growth include ‘Woollen Carpets’ (149.2%), ‘Ship building and repairs’ (81.4%), ‘Instant Food Mixes (Ready to eat)’ (51.4%), ‘H R Coils/ Skelp’ (48.7%), ‘Cashew Kernels’ (28.8%), ‘Scooter and Mopeds’ (27.4%), ‘Plastic Machinery including Moulding Machinery’ (21.7%), ‘Tea’ (21.4%) and ‘C R Sheets’ (20.6%).

On  the other hand, items showing high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ [(-) 85.8%], ‘Sugar Machinery’ [(-) 59.1%], ‘H R Sheets’ [(-) 24.6%] and ‘Leather Garments’ [(-) 20.6%].

And indeed thank god it’s a Friday today! It is a long weekend and we might be most likely spending it in long serpentine queues, waiting to get some cash. Or for some, depositing it too!