IIP likely grew at 11-month high in October

India's industrial production likely increased by 5.4 per cent, its fastest annual pace in nearly a year, in October after shockingly contracting by 0.4 per cent in September, an NDTV poll of 13 brokerages has found. Industrial production was likely buoyed by a 6.5 per cent growth in the infrastructure sector in the same month. The Index of Industrial Production (IIP) contracted 4.74 per cent in the same month last year. The brokerages polled were HDFC Bank (4.5 per cent), Nomura (6.8 per cent), CLSA (6 per cent), Axis Bank (6 per cent), Barclays (7 per cent), CARE (3.3 per cent), Credit Suisse (5 per cent),  Deutsche Bank (7 per cent), HSBC (5.3 per cent), JPMorgan (6.1 per cent), Kotak Mahindra Bank  (5 per cent), RBS (4.6 per cent) and Yes Bank (4.8 per cent). While the positive number could bring the much-needed relief to a battered economy, economists warn it would not imply a sustainable turnaround ahead.

Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, told NDTV that expectations should be realistic as reform policy announcements have a lag effect of at least six months before the benefits start to show up.

Many analysts are attributing positive factory output growth in October to a weak statistical base from a year ago when it shrank 5 per cent, rather than an improvement in actual production. The rise in IIP in October can also be attributed to a build-up in inventories ahead of the festive season (September-November), and strong growth in car sales in October. Car sales in India grew at their fastest pace in 22 months in October from a low base a year ago, helped by the festive season demand which offset high ownership costs, but the industry remains cautious about the future.
"To be completely frank, it is not that industry has recovered in a big way," Vishnu Varathan, economist at Mizuho Corporate Bank, told Reuters. "It’s a very, very light incremental boost despite how the headline numbers look ... because base effects account for the lion's share there."

Industrial output has averaged a meagre 0.4 per cent so far in 2012 and even the expected 4.5 per cent growth for October would be a far cry from the double-digit rates witnessed before the onset of the global financial crisis in 2008.

"We are not looking at growth of more than 2 per cent in the industrial sector for the entire year," Madan Sabnavis, an economist at CARE Ratings, told Reuters. "Growth has bottomed out, there will only be a gradual improvement."

In a note on the Indian economy, Standard & Poor's said it expects only modest progress in this fiscal year as general elections due by May 2014. India's high fiscal deficit, heavy debt burden remain most significant rating constraints, the rating agency said adding that the government's high fiscal deficit target of 4.5 per cent for 2014 is beyond reach. Such a performance would be far behind that of Asian rival China where factory output growth for the same month rose at a faster-than-expected 9.6 per cent annually.

India’s trade deficit eased marginally in November to $19.3 billion (Rs. 1,04,834.43 crore) compared to $21 billion in October 2012, government data showed. Exports fell 4 per cent year-on-year (YoY) to $22.3 billion in November, while imports jumped to $41.5 billion. Brokerage Nomura said the country's external sector remains in a "precarious state" after the trade deficit data was announced

"The improvement in India’s trade deficit in November is not surprising since the seasonal (festive-related) rise in gold imports usually reverses in November. However, the deficit is larger than we had expected ($18.3 billion) as the momentum in export demand has weakened and the fall in oil imports has partly been offset by higher non-oil import growth," the brokerage said in a note. A high trade deficit despite a sharp domestic slowdown reflects weak global demand, export bans, as well as rising commodity import prices, it added.  Last week, data showed that annual economic growth, measured by the gross domestic product (GDP), continued to languish at a near three-year low of 5.3 per cent in the quarter to September, keeping the economy on track to record its worst year in a decade. Finance Minister P. Chidambaram told Reuters early November that growth for this financial year could be as low as 5.5 per cent, which would be the slowest rate of expansion since 2002-03. With inputs from Reuters