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Index of Industrial Production |
| IIP for Dec’09 at 16.8% yoy proves ‘All Is Well’- almost! |
IIP reaches the mind boggling growth at 16.8%, highest since Nov’94, much above consensus estimate of 12.3%. Month over month IIP increased by an impressive 11%. IP increased 8.6% during Apr-Dec vs 3.6% previous year. This stellar growth was driven by Manufacturing and base effect (-0.2% in Dec’08).
Manufacturing strong on both yoy and monthly basis:
- Manufacturing output, with higher weightage in IIP, rose by a strong 18.5% yoy. Within manufacturing, as many as 14 out of 17 industry groups showed positive growth. But weakness in food products continued due to bad monsoon. Transport equipment and parts (+82% yoy), machinery and equipment (+45%), metal products and parts (+12%) showed major growth (see table in next page) indicating that construction, infrastructure and auto sectors are driving growth currently.
- Mining grew at 9.5% in Dec compared to 10.4% in Nov. Electricity increased at 5.4% in Dec vs. 1.8% in Nov. On m/m, both Electricity and mining posted positive growth.
Capital Goods improved significantly and Consumer Goods still strong:
- The consumer goods grew at 12% in Dec as consumer durables grew at 46%, the highest ever after more than 20% growth for past 5 months. The non-durables improved and grew at 3.7% yoy (14% over the last month). Consumer durables growth was supported by booming car and white goods sales helped by low financing cost and improving outlook. Also expectation of increased cost after budget is driving car sales in Jan-Feb.
- Intermediate goods remained robust at 21.7% yoy indicating that overall industrial activity will likely remain elevated.
- Capital goods zoomed at 38.8% in Dec. On month over month basis, it increased 41% in Dec. It indicates that growth is becoming more broad-based moving from consumer sectors to capital goods sector. The ECB data for Dec also shows increased borrowing for capital goods imports.
Bottom Line:
- There is no denying the fact that IIP growth was partially helped by low base and policy stimulus. But obviously the positive momentum has gained traction with growth becoming more broad based.
- A higher than expected growth in Industry will offset any decline in Agriculture resulting in a GDP growth in FY10 that has the potential to surprise on the upside.
- RBI has already announced that the policy action is not event driven like budget. So we expect a rate action only in April as WPI inflation peaks, Govt borrowing for FY11 are out and Global scenario becomes clearer.
- Expectation of higher growth and inflation in FY11will increase nominal GDP expectation next year. So fiscal deficit as % of GDP will be lower in FY11. Tax revenues also go up on better growth prospects. So, net borrowing for FY11 can be expected to be lower than this fiscal.
IIP growth in Dec
The year over year growth of IIP
Indian Industrial production (Sectoral Growth)
The month over month growth of IIP
Indian Industrial production (Sectoral Growth)
Sectoral growth rates (%, y-o-y) within Manufacturing
- 14 out of 17 industry groups showed positive growth.
- What lags? : ‘Others’ declined the most by 9.4% yoy, followed by ‘Food products’ and ‘Leather products’.
IIP – in Charts
Dec IIP beat the consensus estimate by 450 bps
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- Industrial production beat the consensus estimate as it had done for the last few months.
- Dec IIP was partially helped by low base.
- On month over month basis IIP improved by 10.9%.
- Dec IIP at 16.8% is the highest since Nov 1994.
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IIP has been outperforming core sector growth in last seven months
Core Sector Growth at 6% in Dec’09
- The Index of six core-infrastructure industries having a combined weight of 26.7% in IIP logged 6.0% growth in Dec. Cement and Steel showed significant growth.
Export has turned around; Incremental credit also improves indicating more domestic activities
Manufacturing, the big boy of IIP, surged
Consumer durables spikes at 46% yoy in Dec helped by stimulus, non-durables also improve
Capital goods at impressive 38.8% in Dec indicating broad-based growth; intermediate still strong
| Component |
Wt (%) |
| Basic Goods |
35.6 |
| Mineral index |
10.5 |
| Electricity |
10.2 |
| Cement all kinds |
2.0 |
| Nitrogenous fertilizers |
1.8 |
| Bars and rods |
1.8 |
| Carbon steel |
1.1 |
| Structural (light, medium & heavy) |
1.0 |
| High speed diesel |
0.7 |
| Caustic soda |
0.5 |
| Soda ash |
0.4 |
| Aluminium ingots |
0.4 |
| Pig iron |
0.3 |
| Phosphatic fertilizers |
0.3 |
| Sponge iron |
0.2 |
| Plates |
0 2 |
|
| Capital Goods |
9.3 |
| Diesel engines (IPP) |
0.8 |
| Well/off shore platforms |
0.7 |
| Industrial machinery |
0.5 |
| Complete tractors |
0.5 |
| Laboratory and scientific instruments |
0.4 |
| Protection system/switch board/switch gear etc. |
0.4 |
| Computer system and its peripherals |
0.4 |
| Process control instruments |
0.3 |
| Ship building and repair |
0.3 |
| Agricultural implements |
0.3 |
| Power & dist. transformers (IPP) |
0.3 |
| Broad gauge passenger carriage |
0.3 |
| Textile machinery |
0.3 |
| Telecommunication cables |
0.3 |
| Insulated cables/wires all kinds |
0.2 |
|
| Intermediate Goods |
26.5 |
| Cotton yarn (including SSI) |
4.5 |
| Filament yarn |
1.8 |
| Plywood commercial |
1.7 |
| PVC pipes & tubes |
1.5 |
| Particle board |
1.0 |
| Glazed tiles/ceramic tiles |
0.9 |
| Auto ancillary & parts |
0.7 |
| Polyester fibre |
0.7 |
| Shoe uppers |
0.6 |
| Paints, enamels & varnishes (IPP) |
0.5 |
| Viscose staple fibre |
0.5 |
| Corrugated boxes/cartons (all kinds) |
0.5 |
| Ball& roller bearings |
0.5 |
| Newsprint bleached |
0.5 |
| Bottles/bottle glass wares |
0.4 |
|
| Consumer Durables |
5.4 |
| Telephone instruments |
0.6 |
| Scooter and mopeds |
0.6 |
| T.V. receivers |
0.5 |
| Passenger cars |
0.4 |
| Giant tyres |
0.4 |
| Wrist watches |
0.4 |
| Motorcycles |
0.4 |
| Bicycles all kinds |
0.4 |
| Alarm time pieces |
0.3 |
| Electric fans all kinds (IPP) |
0.2 |
| Washing/laundry machines etc. |
0 2 |
| Metallic utensils excl. pressure cooker |
0.2 |
| Refrigerators (domestic) |
0.1 |
| A.C. single phase house service meters |
0.1 |
| Two wheeler tyres |
0.1 |
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| Consumer Non-durables |
23.3 |
| Cotton hosiery cloth |
2.5 |
| Sugar |
2.2 |
| Wheat flour/maida |
2.1 |
| Paper & paper board (IPP) |
1.4 |
| 100% Non-cotton cloth |
1.2 |
| Vitamin a |
1.1 |
| Milk powder of all kinds |
1.0 |
| Cotton cloth (excluding hosiery) |
1.0 |
| Cigarettes |
0.8 |
| Tea |
0.8 |
| Vitamin c |
0.6 |
| Ampicillin |
0.6 |
| Mustard oil/rape seed oil |
0.5 |
| Indian made foreign liquor |
0.5 |
| Writing Instruments |
0.4 |
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| Total Used Based Index |
100 |
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