IIP shocks with 0.6% fall in December: What experts say

India's index of industrial production (IIP) contracted by 0.6 per cent in December 2012, much lower than analyst expectations of a 1.2 per cent growth, as per government data released on Tuesday. IIP for November has also been revised downwards to negative 0.8 per cent from 0.1 per cent.. . Here is what experts have to say:. . Sajjid Chinoy, India economist at JP Morgan:. . There were two really unfavourable base effects - consumer durables and mining. Last month, there was retracement. That the retracement continues suggests slowdown.. . We know investment has not picked up and there are no leading indicators that it will pick up in near term.. . GDP for this quarter will very likely be below 5 per cent.. . The consumption story has now begun to show really sharply. With the slowdown in consumption, the clamour for rate cuts will be more. That is the sector that has been squeezed by high retail prices.. . Shubhada Rao, chief economist at YES bank:. . We saw October phenomenally high, November was correcting. Sequentially, December looks much worse. So clearly what we saw was a blip in preparations of the festive month.. . This is the time CPI has been eating into consumption story as well. It is likely to remain close to 6 per cent. Consumption is being a drag now. That is what the worry would be for the central bank too.. . If I look at our numbers, we would be happy to see even a 1 per cent growth for the full year. Even that will be an optimistic lookout. . . MS Unnikrishnan, MD and CEO, Thermax:. . Well, the numbers are proving that - even if you keep the December numbrs away - manufacturing hasn't grown at all. It is in negative. On the ground level, there is no substantial change which is visible. I am equally concerned about December. I don't see any indication of consumption going up. It is not a positive time at all for the country. If we don't consume, why would we manufacture? If consumption were to catch up it would create an insatiable demand. I was expecting things to pick up in this quarter. But I am frankly disappointed. Won't be surprised if GDP falls below 5 per cent.. . There is a set of Indian industry, 60-65 per cent of GDP number, are fundamentally dependent on the Indian consumption. Consumption coming down is really alarming. I thought things are going to come around. But if it falls to a negative number, it is really alarming. We are fundamentally manufacturing for the domestic consumption, only part of it is for exports. So, it really affects.. . I would say the government can do a lot more. Not about reversal in economy, or a policy change. They have the responsibility to improve confidence that the country is being governed. Now we have to arrest the slide. They have to say that nothing to worry, we are India, we will stand together, we will arrest the slide. . . Glenn Levine, senior economist at Moody's Analytics:. . It was not a good number. It was negative. I, along with other watchers, was expecting a positive number. What is surprising is the production of consumer products. India's consumer sector has always been soft, but this is not ok. . . Naina Lal Kidwai, president, FICCI:. . IIP data for December 2012 has dimmed hope for a recovery in manufacturing in the near future. It is definitely a cause for serious concern as both consumer goods and investments have witnessed negative growth. We need to closely watch purchasing data (PMI index) which was showing signs of revival.. . While new project announcements have tapered off, existing projects are suffering with cost and time overruns indicating a need for improving and strengthening implementation in order to ensure project completion. The new Cabinet Committee on Investments also needs to consider and clear the pending projects within the shortest possible time.. . We feel that these disappointing figures certainly call for high level Committee under the Prime Minister to look into the issue of industrial slowdown and monitor its progress for the next few months.. . In the light of current figures, RBI should also look at further reducing interest rates in order to ensure that domestic consumer demand is strong.. . Jyotinder Kaur, economist, HDFC Bank:. . This is yet another indication that while things could have bottomed out, the past recovery is considerably far away. High inflation is impinging on purchasing power and so industrial growth is slowing, while the government is clamping down on expenditure which is certainly not helping growth. So all this is not a pretty picture. Despite incremental efforts we are still staring at weak growth print. We expect rate cut in March as growth is consistently surprising on the downside while pace of CPI (consumer price inflation) has stabilised.. . Sujan Hajra, chief economist, Anand Rathi:. . What is clear is that any meaningful industrial recovery is eluding us. Demand destruction is far better entrenched than we thought. This, with FY13 advance GDP estimates, clouds the outlook for FY14 growth. We now think that FY14 growth may be between 5-6 per cent.. . We stick to our call that the RBI will lower the repo rate by 75 basis points in the rest of 2013.. A Prasanna, economist, ICICI Securities Primary Dealership:. . Putting together the auto sales number along with news flow from capital goods companies, things look bad on the growth front. The spending cuts by the government will also have some impact on GDP but that is a short-term pain. The crucial difference between other countries who have also taken up austerity measures is in India we have monetary space available.. . Siddhartha Sanyal, India economist, Barclays Capital:. . Given that the IIP is weak across the board and also that the November number has been revised sharply downwards, it seems that the change is statistical in nature, in the sense that there is some adjustment in the base year.. . But going ahead downside risks to growth exist due to the government cut in spending and this is pertinent more to the services sector where government spending has a big role. I think for RBI, WPI (wholesale price index) number and the trade numbers will be more crucial to decide on future rate cuts.. . Nitesh Ranjan, economist, Union Bank of India:. . CPI is a disappointing number but we have seen that food inflation has remained high even in the WPI. I do not expect pressures from the food side to ease anytime soon, so expect the CPI to remain high for some more time.. . The decline in IIP in the month of December, however, suggests that the CSO estimate on full-year growth may be right. This is a kind of pointer which shows that the investment slowdown is quite acute and we need to review various stalled projects.. . From the policy perspective, the RBI cut rates in January and the banking system has started responding to that cut. So we need to wait and watch how the pass-through happens going ahead as well. I think the RBI may not choose to cut rates in March and wait for the full-year policy in the next fiscal year to take a view on further cuts.. . Rupa Rege Nitsure, chief economist, Bank of Baroda:. . IIP growth has been in negative zone in December on the back of continued weaknesses in investment and consumption demand as is reflected in the strongly negative growth in capital and consumer durable goods.. . Today's reading is supportive of the CSO estimate of 5 per cent GDP growth for FY13. Addressing risks to growth will be the main priority for the RBI and the government in the coming months.. . Shakti Satapathy, fixed income analyst, AK Capital:. . The negative data is a bit surprise and is expected to be rate positive for forthcoming policy meet of RBI. Further the downward revision in the November data reiterates subdued investment sentiment. Although the sluggish IIP might prompt for a repo cut in the next policy meet, the rising CPI and underlying threat on the crude and food prices would leave a lesser room for further rate cuts in the next fiscal year.. . Anjali Verma, economist, PhillipCapital:. . It is now an understood fact that the government's reform announcements are long-term positive. In the near term, the government needs to hurry up with project clearances to get industry back on track. However, I still think that 5.4 per cent GDP growth for FY13 is feasible unless things worsen in the March quarter.. . I think the RBI's next move will be another 25 basis points easing in the repo rate in March or April.. . Rajkumar N Dhoot, president, Assocham:. . The latest industrial production figures mirror the current state of industrial activity in the country and call for urgent policy remedies. The 0.6 percent deceleration in industrial output in the month of December has pulled down the cumulative growth since April 2012 to 0.7 percent.. . Negative growth in mining production and indifferent growth in manufacturing have got wider implications and needs to be addressed on priority basis. The slow growth in electricity sector further affects industry prospects.. . As for the use based classification of industry, the continued fall in intermediate and capital goods production indicates that the revival is a distant dream. The negative growth of consumer products further worsens the prevailing levels of demand-supply imbalances in the country.. . ASSOCHAM has been representing on this issue for long time. In fact, as large portion of available resources are used for financing the revenue deficit of the Union Government, it is pushing up yields and crowding out the private investment. The current moderation in manufacturing is mainly caused by sluggish investment activity, waning global demand and high input costs. Indigenous raw material base is deficient.. . Therefore, policy encouragement for sourcing of raw materials from overseas is needed wherever is necessary. Availability of labour with appropriate skill set has evolved as a major growth constraint. Apart from this, every labour legislation has separate inspector and visits of inspectors are not synchronized across all labour enactments. The main challenge is how to ensure uninterrupted power supply to manufacturers, doing away with the existing licensing norms and easing of foreign investment norms effectively? Similarly, MSME turnover is affected by lower productivity and competition from China.. . In view of the above scenario, the Union Budget for 2013-14 must aim primarily at growth and not at revenue generation to the exchequer.. . Aditi Nayar, senior economist, ICRA:. . The contraction in industrial production reflecting a de-growth in four of the five use-based segments in December 2012 is unexpected.. . Consumer demand remains tepid, as highlighted by the sluggish 2.5 per cent expansion of consumer goods in Q3FY13. Moreover, investment activity is yet to display an uptick.. . While industrial growth remains weak, the trend in core WPI inflation and the tone of the Union Budget would be important factors weighing upon the RBI's decision regarding the policy rate in the mid-quarter review next month.. . Chandrajit Banerjee, director general, CII:. . The IIP figures for December are disappointing to say the least. With the exception of October 2012, there is a secular trend developing, which is most disconcerting.. . What is extremely worrisome is the negative growth of the manufacturing sector driven by a sharp decline in demand conditions in the economy. This has happened especially at a time when the festive season was expected to boost consumption demand. The data indicates that upstream mining industries continues to show a contraction in output which, going forward, would lead to shortages of coal, ores and other industrial raw materials.. . Given the situation, under normal circumstances, it would have been natural for industry to ask for a stimulus package. However, given that the government's fiscal situation is quite serious, this could be an unreasonable demand. However, the least we expect is that the Union Budget would not consider raising any taxes or duties and would refrain from introducing new taxes. Sentiments are already reflected in the IIP figures and CII does not want to see any announcements which would hurt industry's confidence. CII hopes that the Union Budget would take bold decisions to rejuvenate demand and boost investor confidence which in turn would stem the slide in industrial production. CII has already suggested to the Ministry of Finance that the Union Budget should be aimed at reviving growth. This would imply taking measures such as containing fiscal deficit, moving towards GST, providing accelerated depreciation on plant and machinery, abolishing MAT on SEZ, etc. The reform agenda brooks no delay.. . Some good has been done by the series of reform measures announced since September 2012 and now the RBI has indicated monetary easing. We hope the RBI would take note of the industrial situation and accelerate the reductions in interest rates. We hope that the calendar year would see at least a 150 bps cut in repo rate. . . With inputs from Reuters

IIP shocks with 0.6% fall in December: What experts say

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