The March IIP numbers indicates that the worst may be over, says Abheek Baruah of HDFC Bank. But he remains cautious as neither anecdotal evidence nor credible indices like the PMI (Purchasing Managers' index) are supporting the uptick in industrial activity.
“I am still little cautious about whether this signals the bottom of the cycle or whether this was to come, but purely based on the IIP there are couple of things happening,” he said in an interview to CNBC-TV18
“Consumer non-durables and capital goods are beginning to show signs of a consistent pick up. So there could be a story in there. Exports could be an explanation because I think there has been a pick up in engineering goods exports to some of the non conventional markets like Latin America and so on,” he said.
Baruah is estimating GDP growth growth in the current fiscal to be between 5.6-5.8 percent based partly on some recovery in industry driven by the base effects.
"I certainly do not think it is going to cross 6 percent in a hurry even with some improvement in industrial growth," he said.
Below is an edited transcript of the Baruah’s interview on CNBC-TV18.
Q: Does 2.5 percent itself sounds like one of the best numbers we have had in quite some time now? Even January was only 2.3 percent, so this is actually the best number since October. Is this the beginning of good news?
A: I would guess so. I think the IIP certainly is showing signs of some consolidation and possibly the worse is behind us. Credible indices like the PMI seem to corroborate what the IIP is saying. I am still little cautious about whether it signals the bottom of the cycle or whether this was to come. But purely based on the IIP, there are a couple of things happening. Manufacturing is showing signs of some traction. Within that, there are couple of sectors, consumer non-durables and capital goods which are beginning to show signs of a consistent pick up. So there could be a story in there.
Exports could be an explanation because I think there has been a pick up in engineering goods exports to some of the non conventional markets like Latin America and so on. The US auto segment is doing well, so auto components would be doing a little better. So I guess that’s part of the explanation for why capital goods are doing well. But I still will be very cautious.
Q: What are you going with though for industrial growth in the current year?
A: For the current year, we had 1.5 percent for industrial growth that is the IIP growth. For GDP we include construction and with that we get a little more than 2 percent, about 2.4 percent.
Q: Would you say your overall GDP trajectory for FY14 is looking good? Do you think that Dr Rangarajan's 6.4 percent target does not look all that outlandish?
A: It looks a little farfetched. I have a much lower number but certainly an improvement over the last fiscal's number, which I have estimated at 5 percent growth. So for this year, I have a number between 5.6 percent and 5.8 percent, which is premised on some recovery in industry partly driven by the base effects, so 4 percent there.
This includes construction that is how we look at it compared to 2.6 percent for FY13. Agriculture 3.5 percent assuming a normal monsoon and trend rate of growth and some improvement in services, 7.2 percent driven partly by better exports and partly by the fact that an improving industrial situation might have some knock-on effect on things like trade and transport.
So my number is as I said between 5.6 percent and 5.8 percent. I certainly do not think it is going to cross 6 percent in a hurry even with some improvement in industrial growth helped by a favourable base effect.
Q: Mining has been showing de-growth for many months. Now that the mining ban has been lifted in Karnataka, when can we start expecting an improvement on the mining print in the IIP? Have you projected any kind of a trend after the ban got lifted?
A: We have been talking to some people who are involved in this. My sense is that for this to show off in the numbers will take a little while, at least three-four months but it will certainly help the aggregate index. It will take a little bit of time for it to actually sort of manifest in better production numbers.