The industrial production numbers for September are yesterday’s story. The credit crunch made its appearance in India during that month and there’s little doubt that conditions have deteriorated very rapidly since then. All the recent indicators, such as negative export growth, a sharp fall in the Purchasing Managers’ Index for October, lower excise duty collections, together with evidence from industry of falling auto sales, production shutdowns and job cuts underline the deterioration that has occurred since September.
The IIP data is also extremely volatile, fluctuating wildly from month to month. Nevertheless, for what it’s worth, the numbers show a sharp rebound in capital goods, which have grown 18.8% in September compared with 0.9% in August and 20.4% in July. But it doesn’t make much sense to look at capital goods on a month-on-month basis. What’s more relevant is that capital goods production during the first half of FY09 has grown at 10.6%, almost half the growth rate of 20.2% notched up during the year-ago period.
The other big increase in September has been in the production of consumer durables, which has increased by 13.1%, compared with 3.9% in August. Kotak Mahindra Bank chief economist Indranil Pan points out that’s probably because of an inventory build-up before Diwali.
That may well be right, but why did consumer durables grow at 13.3% last July, way above the average 6.8% growth for consumer durables in the first half of FY09? Such large month-on-month disparities indicate severe problems with the data. Consider also the very low 2.8% rise in consumer non-durable output in September that seems to indicate a big slowing in demand for consumer staples from the growth rates notched up in earlier months, until one recalls that growth in consumer non-durables fell to 1.9% in March. The results of FMCG companies for the September quarter have been quite good. Nevertheless, the next show to drop is likely to be consumer demand, as economic uncertainties bite into household budgets.
The data also show an improvement in electricity generation, from 0.8% growth in August to 4.4% in September. But, according to the Central Electricity Authority, the growth in generation has been 89% of that targeted for September and there are numerous reports of generation being hampered by lack of coal. More importantly, during April-October, total capacity addition has been 1,758.80MW against the target of 5,226.20MW. Also, the depreciation of the rupee will affect the capex plans for power plants. In short, the improvement in the September IIP numbers is no cause for cheer.