Where is industrial production headed?

For the first time in six months, questions are being raised on the macro-economic fundamentals of the economy, with questions being raised on the robustness of the economy. A CNBC-TV18 shares experts' views with domain-b.

First, the scare on interest rates following the CRR hike and yesterday the industrial growth numbers surprised almost everybody without exception. Abheek Baruah of ABN Amro and Robert Prior-Wandesforde of HSBC Holdings give their perspective to the industrial output numbers that came out yesterday.

Prior-Wandesforde feels that November's industrial production growth may bounce to double digits. According to him, industrial output numbers in November would be the key and that holiday for Diwali was the main cause for the low October numbers. He expects another 50 bps hike in reverse repo rate in H1CY07. He further adds that US slowdown could knock 50 bps off India's GDP growth.

Baruah believes that adjustments due to the Diwali holidays may have caused industrial output numbers to dip. He feels that there is nothing to suggest a dramatic slowdown. He mentions that it is premature to conclude that cap growth is slowing down.

What is your sense after looking at those industrial numbers, do you think it's just a blip, which will get revised or is there genuine reason to be concern?
Baruah: That's pretty much my sense. One can consider looking at it from two perspectives. One is to question the veracity or the accuracy of the data, and if you benchmark it against something like the 'purchase managers index' for manufacturing, clearly there seems to be a disconnect. The purchase manager's index for October shows virtually no signs of any softness.

So I would sort of have some reason to doubt the accuracy of that data. Number two; even if they were to sort of take the accuracy for granted, there are a couple of reasons why this could have happened. One was the fact that in October 2005 you saw a sudden uptake in categories like capital goods and consumer goods and the base effect could itself pull it down. Number two, one must recognise the fact that October was the Diwali month and these are sort of production numbers that we are talking about.