Mixed signals on manufacturing sector recovery as indicators give split verdict

Last Updated: Thu, Feb 16, 2012 19:40 hrs

There are differences of opinion among experts on the timing and extent of a recovery in the manufacturing sector from the dismal data of December, when the growth was just 1.8 per cent.

The widely tracked Purchasing Managers Index (PMI) had painted an optimistic picture of a rebound by rising to 54.2 points in December, the fastest in a month since April 2009.

Yet, such numbers are missing in the official manufacturing data. The year-on-year calculation of the Index of Industrial Production (IIP) overshadowed the growth numbers in December.

As for the manufacturing IIP on a month-on-month basis, it grew 7.2 per cent. This will surprise many, given that it is more than even the 6.27 per cent the country witnessed in PMI for manufacturing.

In November as well, manufacturing in official data grew robustly at 6.5 per cent sequentially. Last month, too, the PMI manufacturing index continued to show a vigorous trend. The index was 57.5 points, up from 54.2 in December, the highest since last May.

“Yes, I am expecting manufacturing revival in the last quarter of this fiscal (January-March),” says C Rangarajan, chairman of the Prime Ministers’ Economic Advisory Council.

However, Abheek Barua, chief economist, HDFC Bank, is not so optimistic. It will take some time for manufacturing to really pick up, he says, adding: “There is a disconnect between PMI and IIP.”

Indranil Pan, chief economist, Kotak Mahindra Bank, feels manufacturing growth has bottomed out. “It may not increase very significantly on a year-on-year basis, but may not go below this point,” he says.

According to HDFC’s Barua, a pick-up in manufacturing on a sequential basis could also be attributed to the seasonal factor.

“Despite that, the numbers have been below expectation,” he says. “The numbers may go up to three-four per cent, but we will have to wait for another two quarters for a revival in manufacturing.”

Mining proved a drag in the IIP, as its production contracted for the fifth month in a row, at 3.7 per cent in December. Coal output growth was positive for the second straight month, at 5.6 per cent. However, that did not reflect in the mining growth on a year-on-year basis.

Still, on a sequential basis the mining production was up 6.4 per cent in December and 4.5 per cent in November. “Yes, recovery in coal is reflected in the month-on-month numbers of mining,” says Barua, and adds, “We sure have some reasons to be optimistic about coal, as the policy decisions have got approvals.”

Rangarajan says problems in coal have “subsided to a great extent”, but says iron ore and natural gas “still remain problematic”.

On the other hand, electricity, growing vigorously for a long time and defying the roadblocks in coal production on a month-on-month basis, grew just 2.8 per cent in December sequentially, against nine per cent on a year-on-year basis.

In fact, sequentially, it has contracted five times in nine months in 2011-12.

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