July IIP Flat At 0.1%

The Index of Industrial Production i.e. IIP, grew marginally by 0.1% in July 2012. This has come below market expectations of 0.3% to 0.5%. The data shows that the industrial growth in the country has completely halted. The cumulative growth during April to July 2012 is at -0.04% indicating that the things have worsened in this fiscal than last year. In the previous month i.e. June 2012, IIP numbers were at negative 1.8% indicating contraction in the economy.

The IIP growth of the Mining and Manufacturing sectors in July 2012 is negative at -0.7% and -0.2% respectively. The Electricity sector however has grown by 2.8% but the same is well below at the numbers seen in the first three months of the current fiscal.

In terms of industries, a total 8 of 22 industry groups in the manufacturing sector have shown a positive growth in July 2012. On the use based classification the growth rates in basic goods are 1.5%, Capital Goods (-5%) and Intermediate goods (-1.1%).The overall growth in Consumer goods is 0.7%.

A very positive growth has been shown by Antibiotics, Room Air Conditioners, Plastic machinery, etc. Similarly, a very negative growth has been recorded by Sponge iron, Gems and Jewellery, Leather Garments, etc.

Only good thing is that the numbers are not negative, but there is nothing to be happy about as the April to July 2012 numbers are -0.1%. While the interest rates remain very high to support the growth, the inflation also remains above the RBI’s comfort level to cut the interest rates.

The RBI has come under pressure from the corporate India as the persistent high interest rate has halted all the investment plans in the country. We believe that government is also in favor of interest rate cut. The RBI in the last meeting cut the statutory liquidity ratio (SLR) rate by 100 basis points to increase the flow of credit to industry. It however kept its policy repo rate at 8 per cent and cash reserve ratio (CRR) at 4.75 per cent. RBI said that the government must act in order to improve the investor sentiment. It has consistently saying that the cut in the interest rate would only increase the inflationary pressure at this time and also harm the growth in the long term.

The monsoon has again become active and consumption is seen slowing down due to which inflation may come down going ahead. The data showed that inflation is already easing with July inflation coming below expectation at 6.87%. RBI’s actions can not be predicted.

After the inflation data, the next thing to watch is the inflation data which is due on Friday.  RBI’s monetary policy review is due on Monday, 17th September 2012.