The spurt in demand ahead of Diwali celebrations and a favourable base effect may drive the growth in Index of Industrial Production (IIP) for October 2012 to an 11-month high of 5%, according to a poll of 15 economists conducted by DNA. The IIP had contracted 0.4% in September.
Majority of the participants expect the IIP growth to be higher than 5% in October 2012.
Industrial production grew 6% in November 2011 after falling 5% in October 2011.
“Industrial production typically picks up before Diwali and falls after that. Base effects should push up this October as October 2011 saw a post-Diwali drop,” said Indranil Sen Gupta, India economist at Bank of America Merrill Lynch. Last year Diwali was celebrated in October, as a result, there would be more working days in the same month this year.
Moreover, strong data on other economic fronts also point to better industrial performance in October. “Car sales in October increased by more than 30% due to Diwali and eight infrastructure industries expanded 6.5%. These have a combined weight of 37.9% in the IIP,” said Devendra Pant, chief economist, India Ratings. Sectors such as consumer durables including gems and jewellery are also expected to perform better.
However, going by the volatile trend seen in the IIP data in the past and due to the base effect, economists said it should not be interpreted as a turnaround in the economic activity.
“This may not signify any turnaround because there has been no substantial underlying improvement,” said Sonal Verma, economist at Nomura. She expects growth in IIP to rise to 6.8% in October.
A Prasanna, economist at ICICI Securities Primary Dealership, said that IIP may have bottomed out, though the November figure could be lower. “While no linear trend is expected, the contractions that were seen earlier could be behind us,” said Prasanna. Barring August, industrial production has been witnessing negative growth since June 2012.