IIP-Consumption revival to raise industrial growth in FY14

CRISIL Research has come out with its analytical note titled "Consumption revival to raise industrial growth in 2013-14" based on IIP data for November 2012. According to the research firm, the Reserve Bank of India is expected to cut the repo rate by 75-100 basis points by March 2014, thereby helping to lower retail lending rates.

Industrial output fell by 0.1 per cent in November 2012 on a relatively high base of 6.0 per cent growth a year earlier. Manufacturing output grew marginally by 0.3 per cent while mining and quarrying output fell by 5.5 per cent in November. The current weakness in industrial output however, should taper off in coming months. We expect industrial growth to pick up in 2013-14 aided by a revival in private consumption growth and a marginal increase in exports. Higher farm incomes (assuming a normal monsoon), increased pre-election welfare expenditure by the government, and lower interest rates are expected to improve household spending in 2013-14. We expect the Reserve Bank of India to cut the repo rate by 75-100 basis points by March 2014, thereby helping to lower retail lending rates. Improved private consumption growth would benefit sectors such as consumer goods and automobiles. Consumer durables and non-durables sectors grew at 1.9 and 0.3 per cent respectively in November. The capital goods output fell by 7.7 per cent reflecting the subdued corporate fixed investment. The 3-month moving averages of growth rates indicate the persistence of weakness in both capital and consumer goods sectors. Output of the eight core infra industries grew by 1.8 per cent in November compared to 6.5 per cent a month earlier. The decline in growth was on account of a fall in production of coal, natural gas and cement, and deceleration in growth rates of electricity, steel and petroleum refinery products. Production of natural gas has been suffering primarily due to decline in production from RIL's KG D6 block. Manufacturing output gap - the difference between the actual growth and its estimated potential growth adjusted for seasonal and irregular effects - continues to remain in the negative territory since April 2011. While in November the output gap stood at -4.1 per cent, it has been narrowing since last few months. Economy and Industry Research

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