November IIP data brings little cheer for the industry

The November reading for the Index of Industrial Production (IIP) points to a revival in manufacturing but the industry is unlikely to be ecstatic. The reason is that growth in November is over a negative base.

IIP for November 2014 was 3.8 per cent higher compared to November 2013 when output shrank 1.3 per cent. Manufacturing rose three per cent in November 2014 compared to the year-ago period when it had dipped 2.6 per cent. Manufacturing in the April-November 2014 period rose 1.1 per cent over the year-ago period when it had declined 0.4 per cent.

One is also not sure if growth is sustainable in all the segments that showed a positive trend in November. The IIP data show that 16 out of the 22 industry groups in the manufacturing sector have shown positive growth during November 2014 - 'motor vehicles, trailers and semi-trailers' with growth of 17.5 per cent is one of them. However, growth here could be a function of manufacturers ramping up production to take advantage of excise duty concessions.

The government had provided excise duty concessions on some segments of the automobile industry till December 2014. The latest numbers, nevertheless, look far better than October when the IIP was 4.2 per cent lower compared to October 2013 and manufacturing shrank 7.6 per cent.

The better IIP numbers were foretold by the HSBC India Purchasing Managers' Index, an indicator of operating conditions in the manufacturing sector, released earlier this month. The PMI had climbed to a two-year high of 54.5 in December 2014 from 50.7 in December 2013.The revival theory would gain ground if the IIP can sustain the positive momentum for another two months.