March 2013 IIP Higher At 2.5%

The Index of Industrial Production (IIP) for the month of March 2013 has gone up by 2.5% compared to the level seen in March 2012. This is marginally up from than the street’s expectation of 2.1% and much higher than revised figure of 0.46% for the month of February 2013 (from the previously announced 0.6%). The cumulative IIP growth for FY13 stands at just 1.0% against 2.9% for FY12.

The sectors that helped the overall IIP growth are Electricity and Manufacturing, which rose by 3.5% and 3.2% respectively over the last fiscal corresponding period. The cumulative growth in these two sectors for FY13 stands at 4.0% and 1.2% respectively.

Under Manufacturing, it was Capital Goods that saw the most improvement. On a yearly basis, growth in Capital Goods for the month of March was 6.9% against a fall of 9.5% in the previous month and 20.1% in same month last year. This impressive successive growth in the segment indicates that the investment cycle is picking up and the worst is behind now.

However, Mining and Consumer Durables remain draggers in the overall growth of the index. The mining index has contracted by 2.9% in March after falling by 8.1% in the month of February. The same is the case with Consumer Durables, which declined by 2.7% in the month of February and 4.5% for March.

Overall, the growth in the index is not broad-based, considering that 12 out of the 22 industry groups in the Manufacturing sector have shown negative growth during March 2013 as compared to that in the corresponding month of the previous year.

Looking at the lacklustre growth of the IIP (1.0%) for FY13, we feel that the overall growth in GDP for FY13 will remain weak, as IIP constitutes almost one-sixth of the GDP. Moreover, the slight pickup in the IIP number will also hinder any further rate in the next RBI meet.