Eight Core Industries grew at 6.8 per cent in February 2012, cues for IIP?

Eight core industries having a combined weight of 37.90 per cent in the Index of Industrial production (IIP) grew by 40 basis points to 6.8 per cent for the month of February 2012 as against 6.4 per cent in Feb 2011. But when we look at MoM basis the eight core industries grew from 0.70 per cent in Jan 2012 to 6.8 per cent in Feb 2012. During the period April to February 2011-12, the cumulative growth was 4.4 per cent against the growth of 5.8 per cent during the similar period last year. The following table shows the growth and weights of the eight Industries:

The highest growing industry for the month of February 2012 was Coal which grew by 17.8 per cent on YoY basis. This was on the back of a low base seen in the month of Jan 2011. Electricity generation also showed robust growth of 8 per cent. However despite the good growth seen in electricity generation, it has failed to match up to the electricity demand in the country resulting into power deficit.

Natural gas output has continuously seen a negative growth over the past 13 months owing to the declining gas output from Reliance Industries KG-D6 basin.  In 5 out of the last 13 months it has shown negative growth of more than 10 per cent.  For the month of February 2012 it grew negatively by 7.6 per cent.

The Cement Industry which is cyclical in nature is looking good. The Industry has consistently grown above 10 per cent over the past four months. For the month of February 2012 the cement Industry grew by 10.8 per cent over last year.   

Well after the good growth in core industry, should one assume that IIP for the month of February 2012 would be better? However this assumption would turn out to be false under the current scenario.

Going by the past trend, the growth seen in the eight core industries has not been in sync with the IIP data released for the month under consideration. While in the month of October 2011 eight core industries grew by 0.3 per cent, the IIP data for the same month showed a negative growth of 5 per cent. The same mismatch trend was also seen in the month of January 2012, where the core industries grew at 0.7 per cent while IIP data grew at 6.8 per cent.

In conclusion, judging by the high amount of volatility seen between the IIP and core industries growth numbers over the past couple of months, it is very difficult to predict the IIP for month of Feb 2012, which is expected to be released at 11 am, on Thursday, 12th April 2012. We also believe that the RBI would not consider the IIP numbers while drafting its monetary policy decision.