Policy action in March depends on WPI data: CARE Ratings

CARE Ratings has come out with its report on IIP growth in January 2013. According to the rating agency, the industrial output expanded for the first time in three months in January. The Index of industrial production (IIP) for the month of January came closer to CARE’s own estimates of 2.8%. This can still not be regarded as a sign of nascent recovery in the industrial production.

The Central Statistics Office (CSO) has released the data for industrial production for the month of January 2013. Changing track from the decline in industrial production, IIP for the month of January 2013 registered growth of 2.4% compared with 1.0% for the same period last fiscal. The positive growth has been primarily influenced by relatively higher growth in electricity and some recovery in manufacturing activities. The IIP growth for December is revised upwards to -0.5%. Cumulative growth in FY13 in Apr- Jan stands at 1.0% as against a growth of 3.4% in corresponding period of the previous year. Cumulative Picture: (Apr- Jan FY13 over Apr- Jan FY12) Mining registered -1.9% growth in April – Jan 2013, as against -2.5% during the same period last year. This continues to be a major concern. Manufacturing registered marginal growth of 0.9% in April - Jan 2013, when compared with 3.7% in April - Jan 2012. Relatively high growth rates witnessed in case of radio, TV etc, coke, refined petroleum, textiles and luggage etc. Growth in electricity has moderated to 4.7% in April – Jan 2013, as against 8.8% in same period last year. Policy Action
The Reserve Bank of India (RBI) in its last policy review cut policy rates by 25 basis points for the first time in nine months to boost growth as inflation showed signs of moderation. The RBI’s monetary policy is primarily influenced by the inflation numbers. The February CPI number came in at 10.9%, indicating high retail inflation. There could be another 25 bps cut in repo rates, however the RBI’s March policy action would be dependent on the WPI numbers which come out on the 14th of March 2013. Conclusion
The industrial output expanded for the first time in three months in January. The Index of industrial production (IIP) for the month of January came closer to CARE’s own estimates of 2.8%. This can still not be regarded as a sign of nascent recovery in the industrial production. The Central Statistics Office (CSO) in its advance estimates for FY13 projected economic growth would decelerate to 5% in 2012-13 beating expectations on the downside. We could expect marginal slippages on account of mining and manufacturing activities which constitute about 17.2% of the GDP. However, the growth of 5% seems likely if compensated by robust growth in the services sector. Disclaimer: This report is prepared by the Economics Division of Credit Analysis & Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report. To read the full report click on the attachment

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