Editorial: Smoke signals

The core is up, but PMI is down; no clear picture yet

Even when it all seems to be in sync, one needs to be cautious about interpreting data from the Indian economy; but when the numbers suggest widely varying trends, it can be simply confounding. Drawing inferences from data, especially over short periods, therefore, can be difficult. Take the core sector data for June—the index rose 4.4% y-o-y in May compared with a contraction of 0.4% y-o-y in April—suggesting activity in industry is perking up; the turnaround in power generation and higher production of coal are both encouraging as is the increased manufacture of steel and cement. Given the core index accounts for 38% of the IIP, this must mean manufacturing is getting back on track.

However, the manufacturing PMI for June paints a somewhat gloomier picture. Not only did the index grow at a slower pace compared with that in May, order flows lost momentum, including those from exports. Indeed, the falling order-to-inventory ratio indicates manufacturing could slow down further in the coming months. June wasn’t a particularly satisfying month for manufacturers of automobiles either; sales to dealers were muted for firms like Maruti Suzuki and Mahindra & Mahindra. More worrying, sales of motorcycles remain lacklustre with even strong players such as Hero MotoCorp and Honda reporting subdued volumes. Since players like Maruti and Hero sell a fair share of their volumes in rural India, it would seem purchasing power in those markets currently isn’t what it was even a year back and how grim the situation is can be seen from the continuing downward trend in the sales of tractors. Should the monsoon be sub-normal, consumers could turn more cautious. The good news is that sales of commercial vehicles remain steady even as the base effect is beginning to wear off, but Ravi Pisharody at Tata Motors cautions that the flow of cargo from the manufacturing and infrastructure sectors isn’t very strong and that it could take a while to pick up. After a disastrous FY15, in which most of India Inc performed poorly, companies, it would appear, aren’t looking to add fresh capacities just yet. In any case, there is a fair amount of excess capacity across sectors so it is not surprising there are no big blueprints for expansion just yet. Going by the credit offtake from banks, which shrank 3.32% between April and mid-June, no big projects are taking off any time soon. But that is not really a big problem; the economy can be up and running even if the several stalled projects are revived since these entail investments of close to R2 lakh crore.

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