Little in IIP that suggests even a bottoming out
Consumer inflation, at 10.9% in February, doesn?t look like its easing in a hurry and a big oil bill and weak exports will leave the current account deficit (CAD) at around 5% of GDP in FY13, but RBI has no option but to bat for growth in its monetary policy review on Tuesday. There hasn’t been any serious monetary transmission after the last repo rate cut of 25 bps in late January, but having trimmed the policy rate, the central bank would want to keep the momentum going. Although the IIP for January is better than expected at 2.4% yoy, there is the usual base effect since January 2012 was a weak month and given that February 2012 was a strong one, February 2013 IIP will be lower. April-January IIP continues to be a paltry 1% vs 3.4% in the same period last year. And the evidence on the ground remains weak?car sales have crashed 12% yoy in February while CV volumes have dropped 11% yoy. While manufacturing has perked up?rising 2.7% yoy after contracting in 5 of the year’s 10 months to January?mining continues to de-grow given the ban on iron ore mining in Karnataka and Goa are yet to be lifted.
There are few signs that investments are getting off the ground and April-January capital goods fell 9.3% vs a fall of 2.9% in the same period last year. Among the best indicators of this, the value of stalled projects in the first 9 months of FY13 were up to R8 lakh crore, up around three times since FY10 while the number of new projects announced are down to lows last seen in FY05. The weak state of order books of engineering companies, at the end of December, 2012, was a clear indication that corporates aren?t confident about new taking on new projects. That confidence will return only when the government?through the Cabinet Committee of Investments (CCI)?speeds up clearances and addresses supply bottlenecks. Rate cuts by RBI may help spur consumer demand but it is investments that are now critical to a recovery.