Industrial growth rate for the month of September 2009 turned to be surprisingly on the upside at 9.1 per cent. Growth was driven by an above average performance by manufacturing (9.3 per cent though lower than 10.2 per cent during Aug. 2009), capital goods (a stellar 12.8 per cent), intermediate goods (10.8 per cent though lower than 14.3 per cent observed in Aug. 2009) and consumer durables (at 22.2 per cent, continuing the momentum from Aug. 2009 at 22.3 per cent). The market consensus for Sep. 2009 IIP growth was 7 per cent considering the fact that six infrastructure industries (with an IIP weight of 26.68 per cent) posted a subdued growth of 4.0 per cent much lower than 7.8 per cent registered during Aug. 2009.
Six core industries (namely crude oil, petroleum refinery products, coal, electricity, cement and finished steel) logged a growth rate of 3.5 per cent in Oct. 2009 tad lower than its Sep. 2009 mark. The seasonally adjusted HSBC Markit Purchasing Managers’ Index (PMI) for India’s manufacturing economy recorded a fall from 55 in Sep. 2009 to 54.5 in Oct. 2009 and further to 53 in Nov. 2009, a sequential month-on-month decline. An index value above 50 indicates expansion, though in the current scenario expansion is taking place at a diminishing rate.
All the above probably indicates that industrial output should face a possible contraction for the month of October 2009 and possibly, thereafter. But what is surprisingly driving industrial growth rate albeit a lower growth in infrastructure and PMI, is the base effect, that is playing out in India’s favour. Though industrial growth rate for Sep. 2009 was on a relatively higher base, Oct. 2009 growth rate will be calculated on a lower base of last year’s post Lehman collapse and global financial meltdown. It is expected that Oct. 2009 industrial growth could clock around 12 per cent with an upside risk.
Six core industries (namely crude oil, petroleum refinery products, coal, electricity, cement and finished steel) logged a growth rate of 3.5 per cent in Oct. 2009 tad lower than its Sep. 2009 mark. The seasonally adjusted HSBC Markit Purchasing Managers’ Index (PMI) for India’s manufacturing economy recorded a fall from 55 in Sep. 2009 to 54.5 in Oct. 2009 and further to 53 in Nov. 2009, a sequential month-on-month decline. An index value above 50 indicates expansion, though in the current scenario expansion is taking place at a diminishing rate.
All the above probably indicates that industrial output should face a possible contraction for the month of October 2009 and possibly, thereafter. But what is surprisingly driving industrial growth rate albeit a lower growth in infrastructure and PMI, is the base effect, that is playing out in India’s favour. Though industrial growth rate for Sep. 2009 was on a relatively higher base, Oct. 2009 growth rate will be calculated on a lower base of last year’s post Lehman collapse and global financial meltdown. It is expected that Oct. 2009 industrial growth could clock around 12 per cent with an upside risk.
Going forward, as the base effect wears off in the coming quarters of FY11, since current year’s base would replace Lehman base of 2008, industry might witness a drop in growth rate during May – Nov. 2010. Thereafter it would embark on an upward trajectory as the 2009 base grows thin. Hence its all about base effect playing its game at the base level and keeping Economists/policy makers guessing about expansion/contraction of economic parameters. India can sport a smile for the time being though……...as the base effect plays out in its favour.
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