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BW Businessworld

Feb IIP Growth Disappoints; Jan Sees Drastic Revision

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Attributing the "disappointing" industrial growth performance to tight monetary policy and global factors, Finance Minister Pranab Mukherjee on Thursday said government and RBI will take steps to revive growth. The RBI, which had raised interest rates 13 times since March 2010 to contain spiraling inflation, is yet to reverse its decision though the price situation has improved considerably.

 "These (IIP) figures will have bearing on monetary policy announcement scheduled for next week. The government along with RBI will take required steps to revive activity in the economy," he told reporters in New Delhi.

The minister said "uncertainty in global economy coupled with monetary tightening in the past have impacted investment recovery".

Mukherjee was commenting on the Index of Industrial Production (IIP) data which revealed that industrial growth rate slipped to 4.1 per cent in February from 6.7 per cent a year ago. During April-February 2011-12, IIP slipped to 3.5 per cent, as against 8.1 per cent a year ago.

However, increasingly, questions are being raised about the authenticity of any sort of government data in the light of drastic revisions in monthly figures. Last year, it was the export data that was revised drastically (Lies, Damn Lies & Statistics) and this time, it is the January IIP figures which have been hugely pegged down.

The Finance Minister said, "this is disappointing ... the revival in manufacturing in the last quarter of 2011-12 has not materialised as anticipated."

Slippages in data collection have led to sharp variations in industrial growth estimates for January from 6.8 per cent to 1.14 per cent, compelling the government to fix the problem by setting up a panel.

The Ministry of Statistics and Programme Implementation (MOSPI) on March 12, had released the provisional IIP for January pegging the growth at 6.8 per cent. This had sent a positive signal as the data was a marked improvement over 2.5 per cent in December, 2011.

However, according to the IIP figures released on Thursday, the January number stands revised drastically downward to 1.14 per cent raising questions about authenticity of the data.

Concerned over the "slippages", the government is in the process of setting up a committee to fix the problems.

"....I think, the government is now setting up a committee to examine the IIP...we really need to tighten the various sources", Prime Minister's Economic Advisory Council Chairman C Rangarajan said.

Chief Statistician T C A Anant said, "there have been some slippages and so we are reiterating to ensure that such types of errors do not occur".

He said the problem mainly arose because of data on sugar production, though the segment has a small weight on the IIP.

"Principally, it's on account of sugar. My guess is 95 per cent of the change is on account of sugar," he said, adding the system for IIP relies on data collection from 16 agencies.

Expressing his concern, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: "They should improve their system."

However, Chief Economic Adviser Kaushik Basu said, it was a "simple clerical mistake" and not a lack of transparency.

Sluggish Economy
Showing persistent sluggishness in the economy, industrial production growth slowed to 4.1 per cent in February this year, mainly due to poor performance of manufacturing sector and consumer goods segment.

However, the pace of expansion in industrial production was faster than a sharply revised 1.14 per cent annual growth in January from 6.8 per cent earlier. The government attributed the revision to an error in sugar production data.

Mukherjee attributed the negative growth in the consumer goods sector to considerable moderation in domestic demand.

The good news for this year, he added, "is strong performance in electricity sector which has recorded a growth of 8 per cent in April-February (2011-12) period as against 6 per cent in same period last year."

Growth in factory output, as measured by the Index of Industrial Production (IIP), was higher at 6.7 per cent in February 2011.

Output of the manufacturing sector, which constitutes over 75 per cent of the index, rose by just 4 per cent in February, compared to 7.5 per cent in February 2011.

Consumer goods output has also shown a slowdown as the production declined by 0.2 per cent per cent in February, as compared to 13.4 per cent in the same month last year.

Besides, the consumer durables segment output contracted 6.7 per cent in February, as against robust 18.2 per cent growth in the same month last year.

However, the capital goods sector witnessed a growth of 10.6 per cent, as against a contraction of 5.7 per cent in the same month last year.

Mining output too has shown some improvement at 2.1 per cent in February, as against 1.2 per cent growth in the year-ago month.

Power generation witnessed a growth of 8 per cent in February, compared to 6.8 per cent in the year-ago period.

During the month, 18 out of 22 industry groups witnessed positive growth in February.

Output of basic goods went up by 7.5 per cent, as against 5.5 per cent. However, intermediate goods witnessed a contraction of 0.6 per cent, as against 6.3 per cent growth in February last year.

Attributing the "disappointing" industrial growth performance to tight monetary policy and global factors, Finance Minister Pranab Mukherjee on Thursday said government and RBI will take steps to revive growth. The RBI, which had raised interest rates 13 times since March 2010 to contain spiraling inflation, is yet to reverse its decision though the price situation has improved considerably.

 "These (IIP) figures will have bearing on monetary policy announcement scheduled for next week. The government along with RBI will take required steps to revive activity in the economy," he told reporters in New Delhi.

The minister said "uncertainty in global economy coupled with monetary tightening in the past have impacted investment recovery".

Mukherjee was commenting on the Index of Industrial Production (IIP) data which revealed that industrial growth rate slipped to 4.1 per cent in February from 6.7 per cent a year ago. During April-February 2011-12, IIP slipped to 3.5 per cent, as against 8.1 per cent a year ago.

However, increasingly, questions are being raised about the authenticity of any sort of government data in the light of drastic revisions in monthly figures. Last year, it was the export data that was revised drastically and this time, it is the January IIP figures which have been hugely pegged down.

The Finance Minister said, "this is disappointing ... the revival in manufacturing in the last quarter of 2011-12 has not materialised as anticipated."

Slippages in data collection have led to sharp variations in industrial growth estimates for January from 6.8 per cent to 1.14 per cent, compelling the government to fix the problem by setting up a panel.

The Ministry of Statistics and Programme Implementation (MOSPI) on March 12, had released the provisional IIP for January pegging the growth at 6.8 per cent. This had sent a positive signal as the data was a marked improvement over 2.5 per cent in December, 2011.

However, according to the IIP figures released on Thursday, the January number stands revised drastically downward to 1.14 per cent raising questions about authenticity of the data.

Concerned over the "slippages", the government is in the process of setting up a committee to fix the problems.

"....I think, the government is now setting up a committee to examine the IIP...we really need to tighten the various sources", Prime Minister's Economic Advisory Council Chairman C Rangarajan said.

Chief Statistician T C A Anant said, "there have been some slippages and so we are reiterating to ensure that such types of errors do not occur".

He said the problem mainly arose because of data on sugar production, though the segment has a small weight on the IIP.

"Principally, it's on account of sugar. My guess is 95 per cent of the change is on account of sugar," he said, adding the system for IIP relies on data collection from 16 agencies.

Expressing his concern, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: "They should improve their system."

However, Chief Economic Adviser Kaushik Basu said, it was a "simple clerical mistake" and not a lack of transparency.

Experts Disappointed
Experts were disappointed by the low figures. A Prasanna, economist, ICICI Securities Primary Dealership Ltd, Mumbai, said: "The data confirms that the IIP growth is in trend with the yearly growth of 4 per cent. But the data is not good at all as even after growth bottomed out in third quarter (October-December), the recovery is not really picking up on the demand side.

"Such higher interest rates in the economy will affect demand-side improvement. From RBI's policy perspective, we still think that there is scope for just 25 basis point rate cut in April as given that inflation is moderating only on the margin, and growth in 2012/13 is expected to be according to RBI's trend line of 7 per cent, there is no much scope for bigger rate cuts."

Chandrajit Banerjee, Director General, CII said: The IIP figures for February 2012 are along expected lines, with moderate improvements being seen in basic goods and capital goods with base effect also playing a part. However, the error reported in the January number has sharply pulled down the growth rate for the year till now. Overall, industrial growth remains weak and is not likely to exceed 4.0% in the full year FY2012. In order to realise the Budget projection of 7.6 per cent GDP growth in FY2013, it is necessary to use all policy levers to encourage growth and investment. It is time that the RBI focuses on getting growth back by sharply reducing interest rates.

Sujan Hajra, chief economist of Anand Rathi Securities said: "We were expecting a better number, above 6 percent. Overall, this is disappointing, but our sense is that irrespective of IIP, the RBI will go ahead with a 25 basis point rate cut at the upcoming policy decision."

"The lower February IIP number as well as the huge revision to January data highlights the growth concerns, and cements view of a 25 basis points rate cut from the RBI (Reserve Bank of India) next week," said Vivek Rajpal, India rate strategist at Nomura in Mumbai.

"We now need to see how the March inflation data comes in because if that too surprises on the downside, then we could see a 25 basis points cut along with dovish language in the statement."

The headline inflation data for March is due on Monday. Inflation for the month is expected to have slowed down marginally to 6.70 percent from 6.95 percent in February, a Reuters' median poll showed.

The RBI next reviews its monetary policy on Tuesday, when it is widely expected to cut the repo rate - the main policy rate - by 25 basis points to 8.25 per cent.

The RBI has already cut banks' reserve requirement by 125 basis points in two moves since late January, making more money available for lending.

The Sensex pared gains immediately after the data, while the rupee was largely unchanged at 51.42 to the dollar.

India's economy probably expanded 6.9 per cent in the 2011-12 fiscal year that ended on March 31, its slowest pace in three years, as global economic uncertainty combined with high interest rates and input costs at home crimped in v estment.

The government expects a better showing from the economy this fiscal year, and has pegged 2012-13 growth at 7.6 per cent.
his fiscal year, and has pegged 2012-13 growth at 7.6 per cent.