Mumbai: The Index of Industrial Production (IIP) for March 2011 was much better than expected, but it did little to enthuse the stock market, indicating that the volatile IIP numbers do not cut much ice with market participants. The Reserve Bank of India has been sceptical about the credibility of the IIP data in the past. For what it’s worth, however, the numbers show that capital goods production increased by 12.9% year-on-year, compared with a decline of 18.2% in February and 18.8% in January. The sharp rise can best be explained by the government spending in March, as departments tried to meet their targets for the fiscal.
The other interesting trend has been a deceleration in the growth of consumer durables, perhaps an indication that interest rate increases have finally started to bite. Month-on-month growth in consumer durables has actually been negative.
The consumer non-durables number, which had started to improve, was also not great in March and a slowdown is evident.
Taken together, the pace of growth in consumer goods has decelerated in March, casting doubts about the durability of the consumption story. If the capital goods growth is a flash in the pan and if consumption is slowing, then that would indicate a moderation in economic activity.
It’s worth pointing out, though, that March’s HSBC Purchasing Managers’ Index—a seasonally adjusted indicator of month-on-month growth in manufacturing—showed the same pace of expansion as in February.