Where is industrial production headed?
14 December 2006
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.