Reply #68: Industrial output is up 7.3%, but keep your fingers crossed

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http://www.firstpost.com/business/industrial-output-is-up-7-3-but-keep-your-fingers-crossed-8706.html

When you are expecting bad news, any lack of it is cause for celebration. This is the case with the latest Index for Industrial Production (IIP) for March, 2011, which rose by a healthy 7.3% over the corresponding period of the previous year.

So is all rosy now on the industry front? We think not. For one, the latest numbers appear good right now in large part because of the serious downward revision of expectations following four months of sub-four percent growth. A look at the monthly growth figures over 2010-11 reveals that IIP has seen better days, growing in double digits during April, May, July and October.

If growth had remained robust, the March figure would actually have looked like a disappointment instead. This is also seen from a comparison with the 2010-11 figures, which have risen by a higher 7.8% – five percentage points higher than the March growth rate.

Second, the 2010-11 IIP growth figures of 7.8% are much lower than the 2009-10 figures of 14.8% over the previous year on a broad-based softening in mining, manufacturing and electricity. It can be argued that the 2009-10 growth was on a low base (IIP grew by 2.8% in 2008-09). However, our estimates suggest that even with a higher base, 2010-11 figures look relatively weak by comparison.