April stood out as a benevolent month for industrial productivity, which SBI's Chief Economic Advisor Soumya Kanti Ghosh describes as best April numbers seen in the last few years. The annual industrial output growth accelerated to a two-month high of 4.1 percent in April. Ghosh remains optimistic of positive IIP numbers in the coming 1-2 months.
A Prasanna, Chief Economist at I-Sec PD too was pleasantly surprised by industrial output numbers did but drew attention on still-weak rural consumption. He said IIP looks positive when compared to core sector data. “Ex of petrol, core consumer price index should settle at 5 percent in coming months." The CPI-based inflation rose to a three-month high of 5.01 percent in May versus 4.87 percent in April.
Meanwhile, Ghosh noted that the capital goods output showed remarkable recovery, coming in at 11.1 percent versus 7.6 percent in the previous month. Although rural consumption is yet to show signs of recovery, a good monsoon — as seen in June of previous yera — may change the situation, he told CNBC-TV18.
Below is the edited transcript of Soumya Kanti Ghosh & A Prasanna’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: What did you make of first the index of industrial production (IIP) numbers? It was much higher than our own poll. What does this give you, was it a surprise for you and does it make you revise your industrial output numbers for the year?
Ghosh: The IIP numbers has surprised on the upside but generally what has happened is that we were expecting somehow strong March and somehow weak April numbers.
However, things have got reversed. I haven’t seen April IIP number as strong as this in the last couple of years. Possibility of April numbers coming back could be because of some amount of traction happening on the loan books. There are little bit of demand for the corpus on the working capital needs. If that is an indication, the coming 1 or 2 months could also be better in terms of the IIP number. So, generally even though I will not say that IIP numbers are going to be robust over the next quarter or so but at least there is some hope that the numbers could stay in these range at least for the next month or so.
Latha: Your take? Were there huge surprise and is it making you re-think on the positive side your full year numbers?
Prasanna: This is definitely a surprise particularly given the kind the core sector data we saw. However there have been some signs in the past few months also particularly on the capital good side they are seeing continuous expansion which we have not seen for quite some time.
We heard from the Finance Minister that the excise collections were quite strong. So it looks like the various pieces of the puzzle are all pointing in the same direction. The only worry is that, there seems to be some weakness in rural consumption.
If you look at the two-wheeler sales data for example that seems to be telling us and that, kind of, fits in with the slowdown in rural wages. So, on the consumption side it looks like it is only urban consumption which is picking now.
Sonia: The buoyancy this time is more on investment rather than on consumption. So after a long time we have seen a sustained pick up in the capital goods space. That was the most important point in this number. Do you see this trend of positive capital goods growth continue and what could the average be for the next 3 months?
Ghosh: I am very surprised at the buoyancy in the capital goods sector because this month also it has been very good. The way it has been moving, there is a possibility that this buoyancy may continue.
However, I am still a little bit worried about the consumption front because that is slowly showing signs of pick-up and if the June rainfalls are as good as it was in 2013 then the rural demand should also see an uptick.
So, from that point of view possibly it is supported by urban demand as of now but rural demand may pick up if the monsoon continuous in the same traction. So, IIP numbers could be headed for better days.
Latha: Are you on the front foot to at least revise up your IIP numbers and growth numbers for the full year? Are you noticing that the underlined inflation momentum is picked up somewhat and we are going to therefore see more of core inflation or core inflation stabilising and upping?
Prasanna: On growth it is still too early for us to say that we are going to re-assess any of our views, so we want some more data - may be one more month of data. Our monsoon is also playing out so after that probably we will re-consider.
Like you mentioned this investment side data is something which you have to keep a close eye on. As far as inflation in concerned, I don’t think core inflation is picking up. So what we have seen is actually petrol prices are going up and that is distorting the core.
If you strip out petrol, last 5 months core inflation has been averaging between 5.1-5.3. It is only because petrol prices first came down and depressed the core inflation. Now it is going up over the last three months and again pushing inflation up.
However, now we are probably seeing the near term peak in oil prices globally which means that petrol prices should not change much, so core will still edge up but should settle around 5 percent in the coming months.
Sonia: Any views on whether we can expect any more rate cuts from the Reserve Bank of India (RBI)?
Ghosh: No, I don’t think so because the Governor has clearly said that he will look at the inflation trajectory. I think he will wait for the monsoon progress and then decide on further round of rate cuts if at all it happens during this year.
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