IIP set to slip to 2% or less for December

The Index for Industrial Production (IIP) is expected to slip in December from the shockingly low 2.7% recorded in November.

The data will be released on Friday.
The primary reason for this, economists said, is the base effect wearing out.

As per a median forecast of 15 economists polled by DNA, IIP for December is seen at 2%, 70 basis points lower than November and more than 900 basis points below the October number, which was 11.3%.

Interestingly, economists themselves violently differ on the number - while some say it could be as low as 0.5%, the other extreme sees it at 6.6%.

“The reason for the low IIP numbers is that the lead indicators are showing a slowdown. The pressure of interest rates and liquidity crunch are visible since December. Also, base effect would be the major reason for a low IIP number for December,” said Siddhartha Sanyal, chief India economist, Barclays Capital.

He predicts IIP to fall to -1% in December.
A Prasanna, economist, ICICI Securities Primary Dealership says though on a year on year basis the numbers are going to be a bit disappointing, “in sequential terms, we expect the output to keep expanding.” Sanyal said by and large the IIP number is likely to stay soft for the next few months.

Indranil Sen Gupta of Bank of America-Merrill Lynch said “we have grown more confident of our standing call that India will open 2011 with a growth scare”.

“We worry more about growth in 2012 rather than in 2011,” he said in a note on Monday.

The wholesale price index (WPI) inflation data for January are expected on February 14 and they  may not show significant signs of decline.

But despite the statistical fall in manufacturing growth, the Reserve Bank of India is seen continuing to hike interest rates during its next policy review to be held in March because its focus remains on the stickily high inflation.

“Inflation will be the major factor for RBI to decide on rate hikes irrespective of the IIP numbers,” said Saugata Bhattacharya, economist and senior vice-president at Axis Bank. 

Reserve Bank of India governor Duvvuri Subbarao on Monday said the tightrope walk in management of inflation and growth is indeed a challenge.

“There is always a tension between growth and inflation. We want to control inflation but without hurting supply responses in the economy,” Subbarao said in his address at an event at the Indian Institute of Management in Raipur.

With growth well back on the recovery path, inflationary pressures remain stubbornly high in the economy.

According to the latest data, India’s primary articles inflation rate rose to a four-week high of 18.44% during the week ended Jan 22 from 17.26% in the previous week on account of a rise in prices of both food and non-food articles.