Montek attributes slump to statistical reasons

Shaking the growing optimism over an on-going recovery while giving clear signals of a bottoming out, the growth in industrial output contracted to a four-month low of 0.1 per cent in November, 2012, mainly owing to poor shows by manufacturing, mining and capital goods sectors, which have been the laggards for most part of the year.

With the slump in industrial growth, as measured by the Index of Industrial Production (IIP), coming immediately after a robust 8.3 per cent expansion in October and way below the 6 per cent growth witnessed in November, 2011, the dismal performance prompted the industry chambers to clamour yet again for a rate cut by the Reserve Bank of India (RBI) in its quarterly review on January 29. The IIP data released here on Friday revealed that the major culprit responsible for the contraction in overall growth was the manufacturing sector, which makes up for over 75 per cent of the index. It grew by a mere 0.3 per cent in November last year as compared to a healthy 6.6 per cent increase in the same month a year ago.

Accordingly, the cumulative growth in industrial production during the April-November period this fiscal stood pegged at a paltry one per cent, a marked pull-down from the healthier 3.8 per cent expansion notched up in the same period in 2011-12. Partly responsible for the poor show thus far this fiscal was the performance in July, 2012, which saw a contraction of 0.1 per cent.

Meanwhile, the growth in the industrial production during October last year has been revised to 8.3 per cent from the provisional estimates of 8.2 per cent.

Analysing the IIP numbers and attributing the slump in factory output in November to statistical reasons, Planning Commission Deputy Chairman Montek Singh Ahluwalia argued that the economy has already bottomed out and the government’s efforts will now show results in the coming months.

“This data does not contradict the proposition that the economy has bottomed out. It now needs to move upwards...you need to wait to see what December is like…In this particular case, we have to keep in mind that the base effect has operated in two different ways,” he said.

Prime Minister’s Economic Advisory Council Chiarman C. Rangarajan viewed that the situation would improve in the coming quarters of the fiscal. “I certainly think in the first quarter of next year or the last quarter of this fiscal, we can see a definite positive growth in manufacturing,” he said.

However, on the possibility of a rate cut by the RBI, Dr. Rangarajan said: “The RBI will look at a number of factors. Wholesale Price Index will be an input into the decision making…The RBI will have to see about an appropriate action being taken in order to contain the fiscal deficit ...Trends are in the right direction perhaps. But let us wait.”