IIP NUMBERS = INDEX OF INDUSTRIAL PRODUCTION = SUMMARY=ANALYSIS=SUGGESTIONS ON METHODOLOGY = BAT FOR GROWTH (REDUCE INTEREST RATES)

Quick Estimates of Index of Industrial Production

 and Use-Based Index for the Month of November, 2011 (Base 2004-05=100)

(1)          Summary

(2)          Comments (& Analysis)

(3)          Suggestions on Methodology

(4)          Bat For Growth (reduce Interest rates)

SUMMARY

The following is the summary of the press release from Govt of India on the quick Estimates of Index of Industrial Production for Nov’2011.

The Quick Estimates of Index of Industrial Production (IIP) with base 2004-05 for the month of November 2011 have been released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation.

The General Index for the month of November 2011 stands at 167.4, which is 5.9% higher as compared to the level in the month of November 2010.

The cumulative growth for the period April-November 2011-12 stands at 3.8% over the corresponding period of the previous year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of November 2011 stand at 127.6, 177.8 and 145.6 respectively, with the corresponding growth rates of (-) 4.4%,    6.6% and 14.6% as compared to November 2010 (Statement I).

The cumulative growth in the three sectors during April-November, 2011-12 over the corresponding period of 2010-11 has been (-)2.5%, 4.1% and 9.5% respectively, which moved the overall growth in the General Index to 3.8%.

In terms of industries, seventeen (17) out of the twenty two (22) industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth during the month of November 2011 as compared to the corresponding month of the previous year.

The industry group ‘Publishing, printing & reproduction of recorded media’ has shown the highest growth of 69.1%, followed by 41.8% in ‘Medical, precision & optical instruments, watches and clocks’ and 29.3% in ‘Food products and beverages’.

On the other hand, the industry group ‘Electrical machinery & apparatus n.e.c.’ has shown a negative growth of 38.7% followed by 8.6% in ‘Furniture; manufacturing n.e.c.’ and 6.4% in ‘Office, accounting & computer machinery’.

As per Use-based classification, the growth rates in November 2011 over November 2010 are 6.3% in Basic goods, (-) 4.6% in Capital goods and 0.2% in Intermediate goods (Statement III).  The Consumer durables and Consumer non-durables have recorded growth of 11.2% and 14.8% respectively, with the overall growth in Consumer goods being 13.1%.

Some of the important items of consumer goods showing high positive growth during the current month and thus contributing to the growth of the overall index for the month include ‘Woollen carpets’ (110.6%), ‘Cashew Karnels’ (97.3%), ‘Newspapers’ (70.9%), ‘Marble Tiles/Slabs’ (65.3%), ‘PVC Pipes & Tubes’ (49.9%), ‘Sugar’ (41.8%), ‘Rice’ (38.4%), ‘Scooter and Mopeds’ (37.6%), ‘Polythene bags including Hdpe & Ldpe Bags’ (34.7%) and ‘Leather garments’ (33.5%).

However, some important items of the consumer goods are also showing negative growth. These are:  ‘Coirs, Mats & Mattings’ [(-) 37.5%], ‘Antibiotics and It’s Preparations’ [(-) 19.7%] and ‘Gems & Jewellery’ [(-) 17.0%].

The other important items showing negative growth during the month are: ‘Cement Machinery’ [(-)72.1%], ‘Cable, Rubber Insulated’  [(-)65.5%], ‘Colour  TV  Picture  Tubes’   [(- ) 64.0%] ,    ‘UPS/Inverter/Converter’   [(-)61.4%], ‘Particle Boards’ [(-)30.3%] and ‘Cotton Yarn’ [(-)18.7%].

Along with the Q.E. of IIP for the month of November 2011, the indices for October 2011 have undergone the first revision and those for August 2011 have undergone the final revision in the light of the updated data received from the source agencies. (It may be noted that these revised indices (first revision) in respect of October 2011 shall undergo final (second) revision in IIP for the month of January 2012).

COMMENTS

ON THE IIP NUMBERS

Certainly, these are quick estimates and these will undergo revisions at least twice – before they become the final version.

Most Analysts of such Economic Data are now increasingly skeptical about the accuracy of these Data. Several points of apprehensions need to be addressed by the Government and the CSO – as quickly as possible.

There can be NO DOUBT  what so ever that if these data become a reliable guide for policy and action – the country will gain very hugely. Not only the Government, but also, the individual Industry segments (of both consumer  and producers), market makers, Investors  and analysts will all will know very clearly where they stand, and what their future actions need to be.

There are disturbing trends in capital Goods sectors which has registered Negative Growth. Any deceleration in creation of Capital Goods affects Growth not only in the immediate future but also for a long time to come. This needs to be addressed quickly.

Also, many key sectors of economy have shown negative Growth – though overall, there is a positive Growth in November.

SUGGESTIONS

FOR REVAMPING METHODOLOGY

The first question that needs to be addressed is – the QUALITY OF DATA.

As in any case – the following questions need to be asked about the data :-

(i)                  Is the data comprehensive?

(ii)               Does it include all sources of Data? Is there exclusion of any Product / Product Group / producer Group?

(iii)               Is there Duplication of Data? Omission is as much a sin as duplication in respect of Statistical data.

(iv)              Is the weight attached to a product  or Group in the Index reasonable in the context of changing Usage / production pattern? For instance, is the weight attached to computing machinery (at 3.5) correct – compared to the weight attached to Wearing apparel; dressing and dyeing of fur (at 27.82).Textiles has a separate weight of 61.64 and should not be including wearing apparel and dressing. In General, the weights need thorough review – as this is the easiest to revise but most conduce to error.

(v)            Who initiates the Data communication process? Is the process reliable?

(vi)               How many layers of data communication and compilation are involved before the final compilation? In the context of Faster, direct means of communication / compilation available now, can we not avail such, direct, faster, more reliable means of communication and compilation?

(vii)              Who interprets data – at each stage? Are there Industry bodies interpreting such Data – and the purpose / conclusions of it?

(viii)             What does CSO do after compilation?

(ix)               When we look at the Data for Industrial Production in the US, we find that US compiles Data under the head –

MAJOR MARKET GROUPS (1) Final products (2) consumer goods (3) business equipment (4) nonindustrial supplies (5) construction (6) materials and under the category of

MAJOR INDUSTRY GROUPS (1) Manufacturing (2) Mining (3) Utilities. The US also gives capacity utilization levels for each group and then, STAGE OF PROCESS (1) CRUDE (2) PRIMARY & SEMI-FINISHED and (3)FINISHED

(x)                 India is a land of computer wizards. The CSO and Government must take full benefit of this talent Pool to upgrade their statistical methods in all dimensions so that they are of significant Benefit to all users of this data. We must also look at what the Advanced Nations are doing on this aspect.

     

BAT FOR GROWTH

We need to discuss the relevance of the November Data. 

MINING : Mining is in the dumps. We all know it. The various scams have done huge Damage. But, mines are a national asset, licensed to certain industrial groups – for use. If they get involved in scams, it is time for Government to nominate some of its own directors for taking firm decisions on production and marketing front – and ensure that mining production meets the country’s needs.

CAPITAL GOODS : Capital Goods has registered a negative Growth. It is difficult for entrepreneurs to go in for creation of capital assets when the cost of funds needed for such capital machinery exceeds the returns on capital, or there is thin margin between the two. 

As a rule - COC must be significantly lower than ROC – otherwise, creation of capital assets does not take place. 

Also, flight of capital takes place – to places where ROC is higher.

This is where, RBI’s raising of interest rates 13 times in one year – to the current High levels comes into the Picture. Finance Ministry and Industry Groups must now press RBI for reducing interest Rates to the level prevailing prior to this one year.

The Nation must now BAT FOR GROWTH.

If Growth suffers for any reason – India will also go the way of the European Nations. There is no way – the RBI can control Inflation through repo / reverse-repo rate raising in India, if the State and Central Governments are indulging in unproductive spending. Also, the amount of Black money and counterfeit currency  in the system and money outside the Banking system – is too huge for Bank credit to make a dent on Inflation. 

Inflation, in India, can only be a function of demand and supply of Products – and bank credit will not be much in the picture. But, yes, by curtailing capital to the producers, it can effectively curtain production and growth. When production and growth are curtailed, while demand is intact, Inflation actually rises higher, and, to my mind, this is what is happening in India.

In my view, Inflation control rests with state and central Governments and Not with RBI – as far as India is concerned.

But, RBI can fuel Growth by lowering the COST OF CAPITAL – meaning, lowering of the interests rates and making more capital available by lowering the CRR. 

There is also no point in Government infusing more and more capital into the Public sector banks, if RBI is raising the CRR and keeping CRR at high levels. Government funds will flow to PSBs and they will remain IDLE there!!

If productivity suffers through Government spending, Productivity can also suffer through NON-SPENDING in this manner.

If India has to achieve higher rates o Growth, the Key lies partially with RBI. Interest Rates must come down significantly and immediately and CRR also must come down.

Of course, Government has to remove Major constraints on Growth – like the acquisition of Land etc.

Let India BAT FOR GROWTH.

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INFLATION DECLINES IN 2 SUCCESSIVE WEEKS = FM SAYS CURRENT RATE UNACCEPTABLE = MORE GOVERNMENTAL MEASURES NEEDED = IIP FIGURES =

FOOD INFLATION

DOWN IN

2 SUCCESSIVE WEEKS

(PLUS IIP FIGURES)

Readers can find below the INFLATION STATISTICS  for the latest two weeks hereunder.

In both the weeks, food Inflation has started declining. We can hope that this trend will continue in future too. The Finance Minister has also said that current levels of 9.5% inflation in food articles is unacceptable.

There is a strong need for Governments at centre and states to adopt  more pro-active measures to combat Inflation in general and Food inflation in Particular, as food inflation affects common masses very adversely. The direct effect of this type of food inflation is that – it reduces the purchasing power of the vast majority of common masses, in respect of ALL OTHER COMMODITIES, for which demand slows down. The FMCG segment in India is already facing this impact.

In the medium term, all other segments also will come under some adverse impact, if this level of Food Inflation continues. There is no doubt that this MUST COME DOWN FURTHER significantly.

The usual short term measures are –

(i)                Prevention of Hoarding

(ii)             Prevention of speculation in essential Food commodities

(iii)           Imports of items in shortage

(iv)            Prevention of cartelization in pricing

Long term measures are of course –

(i)                Improving the acreage under all commodities

(ii)             Better Irrigation facilities

(iii)           Better fertilizer inputs

(iv)            Improving yield per acre significantly.

All these are well known measures. But, in recent past, our performance in all these areas has not been Great. The Food and Agricultural Ministries at the Centre and states must act with greater Foresight in this vital area of national development.

Readers can see the statistics and the FM’s statement below :

India's food inflation rate

 declines to 9.52 per cent  

 New Delhi, March 10, 2011 (PTI):

Ø  After a gap of nearly three months, food inflation fell to a single digit at 9.52 per cent for the week ended February 26 on account of a decline in prices of potatoes, pulses and wheat.

Ø  Food inflation stood at 10.39 per cent in the previous week.

Ø  The rate of price rise of food items has fallen to a single-digit figure for the first time since the week ended December 4, 2010, when it was 9.46 per cent.

Ø  The latest figures are expected to give a breather to the government, which has been under increasing pressure to rein in the inflationary pressure caused by high food and crude oil prices.

Ø  For the week under review, prices of wheat declined by 1.07 per cent on an annual basis, while pulses rates fell by 3.91 per cent.

Ø  Prices of potatoes also fell by nearly 9 per cent year-on-year. However, vegetables continued to be expensive and their prices went up by 9.23 per cent on annual basis.

Ø  In particular, onion prices were up by 3.90 per cent year-on-year. Rice also became dearer by 1.16 per cent year-on-year. Egg, meat and fish became 15.38 per cent costlier.

Ø  Meanwhile, fruits prices rose by 18.75 per cent and milk by 8.42 per cent on an annual basis.

Ø  The non-food articles category saw a price rise of 29.85 per cent during the week on an annual basis.

Ø  Fuel and power also became 9.48 per cent more expensive, while petrol became costlier by 23.14 %.

  India's food inflation rate

declines to 10.39 per cent

 New Delhi, March 3, 2011: (PTI)

Ø  India's food inflation rate declined to 10.39 per cent for the week ended February 19 from 11.49 per cent in the previous week due to a fall in the prices of vegetables and onions, among other things, an official statement said here today, quoting provisional data.

Ø  The fall in the food inflation rate will provide some relief to the Government, which has been under attack by the Opposition for the past many months on the issue of high prices of food products.

Ø  There was, however, a slight rise in the inflation rate for fuel and power to 12.56 per cent from 12.14 per cent for the previous week.

Ø  According to the data released today, the prices of vegetables were up 14.29 per cent from a year ago, fruits by 16.34 per cent, milk by 11.07 per cent, eggs, meat and fish by 14.50 per cent, cereals by 2.01 per cent and rice by 2.38 per cent.

Ø  However, the prices of onions were down 3.64 per cent, pulses by 5.02 per cent, potatoes by 12.66 per cent, and wheat by 2.06 per cent.

Ø  Overall, the annual rate of inflation for primary articles, which have a weight of 20.12 per cent in the WPI, with base year 2004-05, stood at 14.85 per cent for the week ended February 19 as compared to 15.77 for the previous week.

WHAT THE FM SAYS :

New Delhi, Mar 11 (PTI) Terming the current level of food inflation of 9.5 per cent as "unacceptable", Finance Minister Pranab Mukherjee today said the government has taken several steps to bring it down further especially through enhancing supply of essential commodities.

"At the beginning of last year, food inflation was 20.2 per cent, and now it is 9.5 per cent. However, this figure is equally unacceptable," Mukherjee said while replying to the discussion on the General Budget 2011-12 in Lok Sabha.

Mukherjee said the high inflationary pressure, specially in food and some non-food articles, existed in other emerging economies also.

"I am not making any plea. This is not an excuse that because there is inflation in other areas there should be inflation in India also. It is not. But the fact of the matter is inflationary pressure is visible all over the world.

IIP STATISTICS

Ø  Industrial growth has slowed down to 3.7 % in January 2011 compared with 16.8 % expansion in the year-ago period, dragged down by poor performance of the manufacturing sector, particularly capital goods.

Ø  This January growth (at 3.7%),  was better than the 2.53 per cent expansion (revised upward from 1.6 per cent) witnessed in the previous month.

Ø  During April-January this fiscal, the growth in industrial output stood at 8.3 % against 9.5% during April-January 2009-10.

Ø  In January, manufacturing growth plummeted to 3.3 % from 17.9 % a year ago. Capital goods sector contracted by 18.6 per cent. The sector posted a robust growth of 57.9 per cent in January 2010.

Ø  Production in the consumer non-durables segment grew by 6.9 % during the month under review. It had contracted by 7 % in the same period a year ago.

Ø  Growth in the mining sector also plummeted to 1.6 % from 15.3 %.

Ø  Electricity generation output rose 10.5 % in January compared with 5.6 % growth in the same month last year.

Ø  On the whole, 14 out of 17 industry groups achieved positive growth in the first month of 2011.

COMMENTS :

The current trend is certainly encouraging in respect of Food Inflation. It is hoped that Government will take effective measures to control Inflation in coming weeks. The downward trend must continue further.

Industrial Growth has been slowing down – partly due to monetary Policy measures adopted by RBI, which instead of controlling Inflation, has been having negative impact on production.

Control of Food Inflation must be attempted by Governments  through short term and long term measures – and not by the RBI through monetary policy. RBI’s policies will have wide-ranging anti-growth impact, even if it impacts on Inflation,  in contrast to  Governmental measures which can tackle Food Inflation through more focused measures.

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