Once you remove the impact of the unexplained 87% surge in apparel production in April—on top of a 159% one in March—the growth in the index of industrial production falls to a mere 0.4% as opposed to the official 2%. While that’s 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 doesn’t see an upturn in investments—which 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 May—passenger 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 rupee’s 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 Inc’s 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 don’t 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 Fed’s monthly bond purchases. Whether India can do much with this window of opportunity, though, is open to question since there are enough internal problems—with 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.