beyondbrics

After a dismal October, India’s industrial production swung back into positive territory, growing 5.9 per cent year-on-year in November,  according to data released by the Central Statistics Office.

After five months of IP growth falling – and indeed contracting in October -  it was a welcome respite, but might the comeback be too good?

Economists told beyondbrics that the significant reversal from October’s 5.1 per cent contraction – revised to a 4.7 per cent contraction – combined with PMI bouncing back to 54.2 for December, might actually keep the hawkish Reserve Bank of India from speeding up an expected April loosening of monetary policy.

“What this data does, is it kind of removes the urgency. October caused some panic, in markets and industry…but this data removes [some of] that urgency,” A Prasanna, economist at ICICI Securities, said.

The RBI, after indicating a shift in focus to growth, may be tempted to move its focus back to monthly headline inflation figures – December numbers are due on Monday – in the light of the better-than-expected IP numbers.

But IP is likely to remain on the weaker side in the near-term, says Indranil Pan, chief economist at Kotak Mahindra Bank, though probably better than the four months between July and October, when average growth was 1.1 per cent.

“I think definitely there was a significant bounce no doubt, and to a certain extent what is heartening is that the consumption segment along with capital goods both registered a bounce,” he told beyondbrics. “But to a certain extent this could be due to a restocking effect after the [holiday] month of October and it’s more of a normalizing.”

Consumer goods output, overall, grew 13.1 per cent over November 2010, a significant increase over October’s 0.8 per cent contraction. Capital goods contracted 4.6 per cent when compared with November 2010, considerably better than October’s 25.5 per cent contraction.

Prasanna said those figures could be significant for the economy, but need to be watched over a longer period of time.

“The rebound in consumer durables [is] interesting – we need to see if that trend sustains,” he told beyondbrics. “If it does that is good news because it shows that consumption is still strong which should provide some solid foundation to growth in the current year.”

The mining, manufacturing and electricity sectors each showed improvement in November from the previous month. Mining contracted 4.4 per cent, up from a 7.2 per cent contraction in October; manufacturing grew 6.6 per cent, up from a 6 per cent contraction; and electricity grew 14.6 per cent, up from 5.6 per cent in October.

Prasanna said gains in mining and manufacturing were likely to continue as the effects of a bad monsoon faded for miners and labour unrest at India’s largest carmaker, since resolved, was no longer reflected in the data.

But while the Moody’s Analytics was “caught off guard by the magnitude of the rebound…[which was] well above expectations and consensus”, Glenn Levine, senior economist, said in a research note, that it would be best not to overreact:

We’ll stick with our prediction for 6% GDP in 2012 as we believe that the India story remains basically unchanged – a good production number can’t reverse the current investor angst or policy stasis, for example. Moreover, even though the economic data from India is often unreliable and sporadic, it’d be a bit of an overreaction to start throwing out the old forecasts on the basis of a single number. But nevertheless, we’ll need to keep an eye on things. Some more good data may force us to revisit our India story.

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India IP grows 5.9% in November, beyondbrics
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