India's IIP grows 2.6% in Jan, exceeding 0.65% estimate
Industrial growth slowed to 2.6 per cent in January, against 3.2 per cent in December 2014. However, it belied apprehensions of much slower growth in January, expressed by many analysts. The expansion, though was not broad-based and was largely confined to highly volatile capital goods sector.
For the April 2014-January 2015 period, the growth stood at 2.5 per cent, compared with 0.1 per cent in the year-ago period, leading analysts to say it is a bit of a recovery.
Industry-wise, only a few segments rose significantly. While electrical machinery and apparatus rose 28 per cent in January, furniture rose 23.5 per cent. Rubber and plastic products rose 15 per cent and basic metals by around 14 per cent.
The consumer durables segment continued to contract, with output in this segment falling 5.3 per cent in January. For April-January FY15, this segment recorded contraction of 14.2 per cent, against a decline of 12.5 in the corresponding period of FY14. Together with it, fast-moving consumer goods declined, albeit marginally by 0.1 per cent.
The intermediate goods segment contracted 0.8 per cent in January.
The manufacturing sector, which weight of 75.5 per cent in the IIP, expanded 3.3 per cent in January, against 0.3 per cent in January 2014. During the April-January period of FY15, it recorded growth of 1.7 per cent, compared to contraction of 0.3 in the corresponding period of FY14. Mining woes continued, with output in this segment falling 2.8 per cent in January, against a rise of 2.7 per cent a year earlier. Electricity generation increased just 2.7 per cent, compared with 6.5 per cent in the year-ago period. This might affect industrial production in the next few months.
Unfortunately, as posted earlier, the IIP data still used several old data series artifacts, and there remains a lot of gaps to fix before IIP data matches the current series GDP figures. It's hard to treat the IIP figures as more than noise now.
The new base year and methodology changes have resulted in a continuous series of controversies. The problem can be summarized as this: the growth data reported for the last 2 years far exceeds the growth rate of several constituent entities, exports etc. On the other hand, in the 2000s, many constituent entities reported far higher growth rate than topline GDP growth. The general consensus is that data generation in the past was incomplete and broken, and that the current 'high GDP growth' is really growth in those years being reflected into the total numbers to some extent.
Doubts remain on new GDP series
A report from the Emerging Advisors Group, a global consultant, examines the growing divergence between GDP growth as measured by the new set of metrics and key indicators of economic activity which, it feels, correlate well with GDP growth. Economists often rely on proxies such as electricity production to gauge real growth. The 12 indicators it identifies are agricultural and industrial production, credit growth, electricity and cement generation, vehicle sales and freight traffic growth, export volume, corporate sales, the revenue of listed companies and government revenue.
The report contrasts the real growth of each of these indicators during the high-growth phase of 2005 and 2006, when the economy expanded at a scorching annual nine-plus per cent, with their growth in the second half of last year (July to December), when GDP growth according to the revised methodology was just shy of eight per cent.
The divergence is staggering. Almost every data point points to a much lower growth figure. Of all the 12 indicators, only one - power generation - grew faster in 2014 than in earlier years. And, the growth for three other indicators - vehicle sales, freight traffic and cement production - in 2014 could be said to be near those in the earlier years. For all other indicators, a large gap exists.
Part of the difference between the earlier and the new series could be attributed to the inclusion of new data sources, which have a wider coverage, it says. However, if one accepts this, using the same sources for previous years could lead to higher GDP growth in the mid-2000s.
The other, probably more critical change to the way the new numbers have been calculated, is the way value added, especially in manufacturing, has been estimated. The sharp turnaround in manufacturing under the new series is because of the use of a new corporate data base, MCA 21, which has had significant implication for value addition and growth.
For large companies, the difference between value addition under the earlier and new series is significant. Enterprises, the CSO argues, provide post-manufacturing value added, through marketing and other services. This component of value added was earlier being excluded from GDP because it was not covered in the Annual Survey of Industries, although the enterprise concerned belonged to the manufacturing segment.
As all the key economic indicators the report focuses on are essentially volume indicators, this increase in value addition will not get reflected in those. Hence the divergence between the indicators is bound to be present.
I think it will take 2-3 years for GDP data to really stabilize. GDP growth figures in the 2000s were progressively increased during several revisions, as additional data enabled gaps to be filled.
Not to derail this thread.
