Editorial: Dressed up IIP

Updated: Jun 13 2013, 07:04am hrs
Once you remove the impact of the unexplained 87% surge in apparel production in Aprilon top of a 159% one in Marchthe growth in the index of industrial production falls to a mere 0.4% as opposed to the official 2%. While thats lower than even the IIP in March, what is more worrying is that Tata Motors managing director Karl Slym says he sees no signs of demand revival and L&T chairman AM Naik adds that he doesnt see an upturn in investmentswhich is why, on even a low base, loans to corporates and individuals have grown at an anaemic sub-15% level on a year-on-year basis in the first two months of FY14. Initial signs for Maypassenger vehicles sales contracted 8.9%, CVs contracted 10.6% and 2-wheelers rose just 1.1%suggest the IIP may not rise too much either, more so given May 2012 showed a slightly more robust growth compared to April 2012.

While a repo cut on June 17 was supposed to help revive some momentum, the rupees collapse means that is off the table since the emphasis has to be to attract investors in debt to begin with. Indeed, with the rupee playing havoc with corporate balance sheets, India Incs ability to invest has got further compromised. According to a Bank of America Merrill Lynch analysis, a 5% rupee depreciation means a fall in FY14 EPS of 53% for an Adani Power that is very import-dependent and a Bharti Airtel by 11.6%. While the rupee will benefit exporters like IT firms, their ability to expand depends upon global conditions that, at the moment, still dont look rosy. How the rupee behaves will depend on whether the government can instil confidence in foreign investors, though the fact that the US recovery is patchy will help since this will delay any contraction in the Feds monthly bond purchases. Whether India can do much with this window of opportunity, though, is open to question since there are enough internal problemswith mining growing in just 1 of the last 12 months, for instance, electricity production grew just 0.7% in April. A good monsoon will help revive GDP a bit, but if the Cabinet clears the Food Security Bill ordinance later today, the message to investors is clear: the election season has begun.