NEW DELHI (TIP): The Index of Industrial Production (IIP) for the month of October expanded at a robust 8.2% versus a contraction of 0.7% in September. This beats the ET Now poll expectations of 4.9% by a large margin. The consensus range of the poll stood between 1% to 7.5%. This is the highest that the IIP has touched since June 2011, when the indicator came in at 9.5%. The manufacturing sector grew at 9.6% versus a contraction of 1.5% in September. The electricity sector witnessed a growth of 5.5% versus 3.9%.
The basic goods sector grew at 4.1% Saugata Bhattacharya, Economist at Axis Bank told ET Now that the magnitude of upside in IIP is surprising. “It will be difficult to attribute what exactly has contributed. A very large part of this is the base effect, but the increase over and above what we had expected has been significantly higher,” Bhattacharya said.
Commenting on the number, A Prasanna, Economist at ICICI Securities primary dealership said, “We should be careful in not overinterpreting this number. With some shifting of festivals in October and more number of working days, we should see some payback in November. Already, we saw the auto sale numbers, which were not encouraging, and maybe that will reflect in the overall industrial production numbers for November.” “That said, there are enough signs of optimism. A lot of supply side issues that were there last year, seem to have gone away.
In a sense, the IIP number that we saw in September showed a bottoming out, and we may see expansion month after month from here. If this kind of number sustains, then the situation on growth may not be alarming, in the sense there is going to be some recovery,” Prasanna added. V Ashok of Essar Group feels that the worst is behind us. “We see the reality on the ground as we interact with a lot of stakeholders and there is definitely a mood of optimism that things would definitely improve. However, the numbers look a little too good for comfort. They look too high but definitely, things are on the upside. The stock markets are buoyant,” he told ET Now. IIP normally picks up before Diwali and sees a dip after that. IIP is expected to improve in the first half of 2013. The ET Now poll participants believe that inflation will remain high, but will peak of at 7.5-8% in December due to a high base effect.
Government policy reforms remain key to the country’s GDP growth, the poll says. The RBI is likely to cut repo rates by 50-75 bps during January-July 2013 period. The bank’s action will be guided by growth-inflation dynamics.