FE Editorial : Hold the champagne
The Financial Express: Dec 13 2012, 03:59 IST
A fortuitous change in the month Diwali was celebrated this year (November as opposed to October last year), and an unexplained jump in automobile sales in October (perhaps there’s a big inventory build-up at the dealers?) ensured that the IIP grew a dramatic 8.2% in October after having declined 0.7% in September—in the April-October period, IIP was negative for the four months. The 25.9% hike in “motor vehicles, trailers and semi-trailers” in October itself contributed a 1.4 percentage point hike in the manufacturing index’s 9.6% rate of growth, and to a 1 percentage point in the overall IIP. Indeed, sales of commercial vehicles, a lead indicator, have contracted in 7 of the last 9 months. Capital goods, which rose a dramatic 7.5% in October after contracting in each month since April, similarly, contributed around 0.9 percentage points to the manufacturing growth of 9.6%. Whether the October data is an aberration is hard to say, but it’s worth keeping in mind that, in four of the last five quarters, order books of 10 key capital goods companies like L&T, Bhel and Siemens contracted—minus 7% in Q2FY12, minus 9% in Q3FY12, minus 38% in Q4FY12, plus 16% in Q1FY13 and minus 29% in Q2FY13. Sugar production in October, similarly, jumped a massive 95.5%, and this alone added around 1.4 percentage points to the October IIP. In other words, it’s a good idea to hold the champagne since the October IIP jump looks overstated. In all probability, just the base effect alone—October
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