Indian economy shows feeble signs of recovery with IIP inching up 2.4% in January 2013 - TRANS SCAN

The Indian economy seems to be showing some feeble signs of recovery with the industrial production inching up 2.4% in January 2013 riding on manufacturing output growth and enhanced power generation. The factory output, as measured by the Index of Industrial Production (IIP), had grown 1% in January 2012.

During the April-January period of FY13, the general index of industrial production grew at 1%, down from 3.4% growth recorded in the corresponding period of FY12.

The contraction in factory output for December 2012 has been revised slightly upward to 0.5% from a decline of 0.6% as per provisional estimates released last month.

Manufacturing sector, which constitutes over 75% of the index, grew 2.7% in January 2013 against 1.1% in January 2012. During April-January period of FY13, the growth remained low at 0.9% against 3.7% growth in the same period in 2011-12. Power generation has increased 6.4% in January 2013 against 3.2% growth in the same month last year. During April-January of 2012-13 fiscal, electricity generation has gone up 4.7% compared to a growth of 8.8% in the same period last fiscal.

Capital goods output, a crucial investment indicator, declined 1.8% yoy in January 2013. The sector witnessed a positive growth just once in the last 10 months. The consumer goods sector, however, has recovered, posting an annual growth of 2.8%. India's economy has been constrained by feeble capital investment and dwindling consumer demand. A series of government policy reversals coupled with a slowdown in the rate of implementing key industrial and infrastructure projects have added to investor gloom.

The industrial output expanded in January 2013, the first time in about a quarter. This could be an early sign that Asia's third largest economy may have embarked upon a road to recovery. However, the data over the next few months would suggest the actual path.

Concerned over the intensifying economic slump and emboldened by a slowing trend in inflation, the Reserve Bank of India (RBI) in January 2013 cut interest rates for the first time in nine months. However, it also cautioned that room for further monetary easing was limited except for a significant improvement on both the inflation and current account deficit fronts.

The pertinent question now is whether RBI would further ease the interest rates or keep them unchanged at its policy review on 19th of this month as retail inflation has picked up pace again. Consumer price inflation inched up to 10.91% in February from 10.79% a month ago, according to separate data on Tuesday. February wholesale price index data, which the RBI gives more weightage to in setting policy, is due on Thursday.

Source : Equity Bulls

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