Too early to cheer July IIP, capex cycle still slow: CMIE

After many months of pain, upbeat July industrial production data and slightly lower retail inflation may have come as a breather for many. But, Mahesh Vyas, MD & CEO, CMIE feels it is early to cheer and say that the capex cycle has restarted. 

The July IIP witnessed a growth of 2.6 percent after two consecutive months of contraction. This was led by manufacturing, capital goods and electricity. Retail inflation for August eased marginally to 9.52 percent. According to him, these data points are not giving enough indications of improving investments. He further added that it would take at least six months for the effect of rupee’s steep fall to reflect in export data. So, one cannot jump the gun and say that rupee has played role in exports growth. However, he agrees that the measures taken by the Reserve bank of India (RBI) & the government have helped to reduce gold imports. CMIE will announce its FY14 GDP growth outlook in first week of October. Also Read: Stable auto sales, exports may sustain growth, says StanChart Below is the edited transcript of Mahesh Vyas’s interview with CNBC-TV18 Q: We have got a strong Index of Industrial Production (IIP) number. Are you getting a whiff of capex cycle improving? A: Not yet. The IIP numbers are just one data point which show a 2.6 percent increase after falling for two consecutive months. That is not enough of an evidence to say that the capex cycle has restarted. There are lots of things in the capex pipeline which suggests that this is merely a pause. But there is nothing to take from the IIP or the slowing down of the inflation or other indicators which tell me that these are indicators to see that there is a pickup in the investment cycle. So far as the capex data is concerned there is no indication from there that there is any increase in implementation or in new proposals. Q: Do you believe that exports are now on an upward trajectory and we have seen the worst as far as the export numbers are concerned? A: It is too early to say that. I don't think that a change in the exchange rates can translate into a change in the trade numbers so soon, it takes time. There is a minimum six month lag before the effect of the exchange rate will show up in export numbers. It is really too early to expect any effect on exports or imports right now. The only thing we can see in the trade data which is the impact of policy intervention is that gold imports have come down dramatically after curbs were brought into those imports. But it is too early to say the exchange rate has played a role in the trade numbers yet. I don't expect it to play a role in the coming two-three months as well, it will take more time.