FE Editorial : Wheres the bottom

Written by The Financial Express | Updated: Feb 14 2013, 02:19am hrs
With manufacturing contracting for the second month in a row in Decemberit has contracted for 5 out of the years 9 months to Decembereven a more than doubling of electricity growth over November couldnt save the IIP, and this contracted 0.6% in December. And thats on top of a 0.8% contraction the previous month. This means, in the first 9 months of FY13, IIP has grown just 0.7% or less than a fifth the 3.7% in the same period last year. Though it is incorrect to compare data for manufacturing in the IIP series with data for manufacturing in the advance GDP estimates put out last weekIIP measures production while GDP measures value-additionthe collapse of the IIP series suggests meeting even the 5% GDP target the CSO has estimated is likely to be at risk unless there is a sharp pick up in growth over January to March. This could, of course, happen since January 2012 had a lower manufacturing growth than December 2011 and March 2012 actually saw a negative growththat means in 2 of the next 3 months, chances of the IIP growing faster are good.

No meaningful growth, however, can take place unless there is a massive jump in the number of projects cleared through the Cabinet Committee on Investments (CCI) process. The value of stalled projects in the first 9 months of FY13 was up to R8 lakh crore, up around 3 times since FY10; the number of new projects announced are down to lows last seen in FY05. The same picture can be seen from the mutedjust 7% on a year-to-date basis in FY13growth in the amount of loans being disbursed by banks. But were some big projects to be clearedlack of clearances for mining coal mean 43,000 MW of power projects expected to come on stream by FY16 wont be able to function at more than 40% capacitythe situation could change quickly. Apart from the fillip it will give to mining, which contracted 4% in December, it will change the fortune of capital goods firms or those of firms making commercial vehicles. Tata Motors, for instance, saw a 29% yoy fall in sales of medium and heavy commercial vehicles in the April-December period of FY13; order books for engineering firm BHEL fell 22% yoy in the December quarterthe capital goods sub-index fell more than 10% in April-December. Rate cuts by RBI can help stem the decline a bitautomobile sales, for instance, will risebut with investments grinding to a halt, consumer sentiment is naturally muted. CSOs advance estimates for FY13 pencil in a halving of consumption growth, from 8% in FY12 to a likely 4% in FY13. All eyes are on the CCI. And if that doesnt deliver, it means the CSOwhose estimates have been publicly rubbished by many in the governmentmay well have the last laugh.