Friday, December 12, 2014

Modi: Economy, who me worry?

Modi: Economy, who me worry? Economy Dec 13, 2014 ...
13 hours ago - Modi: Economy, who me worry? Economy Dec 13, 2014 October industrial output hits 3-year low: Why the figure may be overstating the sress By Dinesh ...

Economy Dec 13, 2014

October industrial output hits 3-year low: Why the figure may be overstating the sress

By Dinesh Unnikrishnan
October industrial output hits 3-year low: Why the figure may be overstating the sress

The 4.2 percent contraction in the factory output numbers for the month of October as against a growth of 2.5 percent in September came as a huge, unexpected shocker.
The sharp drop in IIP has clearly overshadowed the positive sentiments due to an encouraging fall in retail inflation numbers for the month of November to a record low of 4.8 per cent from 5.52 percent a month ago.
To be sure, the IIP numbers may be overstating the stress in the economy. But, it is certainly an eye-opener for the Modi-government to get its act together and kick off growth-oriented reform process and translate the positive sentiments to real investments.
The sharpest fall was seen in three segments--consumer goods, consumer durable and manufacturing--which dropped by 18.6 percent (down 4 percent in preceding month), 35.2 percent (down 11.3 percent in preceding month) and 7.6 percent (2.5 percent growth last month), respectively.
Besides, the growth in capital goods—an indicator of corporate investments—too have shrunk by 2.3 per cent as compared with a growth of 11.6 per cent in the month before.
Broadly, this means consumers spent much less despite being the October festival season and no real investments have happened in the manufacturing segment, also reflected in the bank loan outflow, which remained muted so far this year.
But if one takes a closer look, the 4.2 per cent decline in the factory output may be a bit of exaggeration of the actual stress in the economy and could also be due to some one-off factors.
“The number is a bit of overstatement of the stress in the economy. These numbers are volatile and can be revised later,” said D K Joshi, chief economist at Crisil, the Indian subsidiary of global rating agency, Standard and Poor’s.
For instance, the 78 percent decline in the telephone instruments segment, which includes mobile phones and accessories can be attributed to Nokia shutting down its Indian operations in October. If ones takes out the massive decline in the radio, TV, communication segment, the IIP number could have been actually positive, according to Soumya Kanti Ghosh, Chief Economic Advisor, SBI.
Similarly, there has been a 41 percent contraction in the production of antibiotics against 25 percent contraction in the previous month, which too have contributed to the overall fall.
There are others too, who believe the October IIP numbers doesn’t ring an alarm bell.
“Given the fewer number of working days on account of the shift in the festive calendar, the sharp contraction in manufacturing output in October 2014 should not be construed as a cause for alarm,” said Aditi Nayar, senior, economist, rating agency ICRA.
According to Nayar, on the other hand, some indicators suggest an uptick in manufacturing output in November 2014.
“For instance, after contracting by 5 per cent in October, automobile production expanded by 12 percent in November. In our view, average growth for October-November 2014 would provide a clearer picture of the evolving trends in factory output in Q3FY15,” Nayar said in a note.
Having said this, the sharp contraction in consumer spending and capital goods segment should act as an eye-opener to the Modi-government. The hard fact is that the continuing contraction in IIP signals that investment activity hasn’t picked up on the ground, as yet, despite the positive environment created so far.
Stalled projects are yet to come back on track and fresh ones are yet to come up. This is evident from the trends in bank loan flow. No meaningful bank lending has happened to mid-sized companies and large companies in the last two years.
“Nothing has changed on the ground. The consumer demand remains low and the investment activity hasn’t picked up yet,” warned Madan Sabnavis, chief economist at Care rating.
“The decline could (also) be attributed also to lack of government spending as the government is constrained by its fiscal outflow. It cannot be the driver going forward,” Sabnavis said.
To sum up, the NDA-government, under Narendra Modi, has clearly succeeded in the last seven months to build up positive sentiments for the common man and industries. It is time now to start delivering on the promises made by pushing critical reforms and getting real investments done on the ground.
If the government fails to deliver, the fate of Modi and his team wouldn’t be too different from that of UPA.
by Dinesh Unnikrishnan

Join the discussion…

    the govt cant do much ,country has been left in a socio economic mess by misrule of past decades ----
    its only the fall in oil prices that is holding this economy
    the education system which is the basis of any nation is totally lost
    research of any kind is non existent
    sonia very wisely followed a scorched earth policy once she realised she wont be coming to power
    the previous govt focused on subsidies to garner votes and people are now used to it be it on lpg or electricity for farmers ,the psu banks have been used to fund projects of politicians and their children thus creating huge npas
    the housing sector is totally in control of greedy builders which act as front for corrupt local or naonal politicians thus the focus is totally on getting land acquired by by govt and building commercial projects on it rather than affordable housing
    what is the research percentage in india by its industries ,by its universities
    if we really are a growing power how much are we focusing on research ,education,infrastructure

  • Monthly reports have little value. Economic activity is seasonal. One sector may rise but other sectors may not show sufficient activity. Entire picture is required.

    Dont press panic button immediately, its monthly report not quaterly or 6 monthly or yearly.

    Life goes on.

  • Column: GDP Growth OECD vs India
    2008: OECD: 0.2% India: 6.1%
    2010: OECD: -3.4% India: 5.2%
    2012: OECD: 1.3% India: 4.9%
    2014: OECD:1.8% India: 5.4%
    Headline inflation:
    2008: OECD: 3.7% India: 8.6%
    2009: OECD: 0.6% India: 9.7%
    2010: OECD: 1.9% India: 10.3%
    2011: OECD: 2.9% India: 9.6%
    2012: OECD: 2.3% India: 9.7%
    2013: OECD: 1.7% India: 10.7%
    2014: OECD: 1.8% India: 7.6%

  • Source: FirstBiz

    ...and I am Sid Harth

No comments:

Post a Comment