Explaining the robust IIP of November 2016

Low-base effect, festive season shifts make growth look rosy

by Manasi Swamy

The Index of Industrial Production (IIP) rose by 5.7 per cent in November 2016, after recording a year-on-year contraction in three of the preceding four months. The sharp increase in the index sprung a pleasant surprise and many believed that the Indian industry has managed to shrug off the impact of demonetisation.

But, the growth reported by the IIP in November 2016 is a mirage.

Firstly, the growth in November 2016 has come after a 3.4 per cent fall in the IIP in the year-ago month. The base for the first seven months of 2016-17. In November, the base was very low.

Secondly, the month of November 2016 was bound to show a healthy growth due to a shift in the festive season. Industrial units operated for only 22 days in November 2015 due to Diwali holidays. But, this year, Diwali was in October, which means that the industry could have operated for all 25 working days. If this were to be true, the industry could have reported a 13.6 per cent growth even if the daily output had not shown any growth.

On this background, the 5.7 per cent growth recorded by the IIP in November appears quite weak. It effectively means that industry either saw a drop in daily output or remained shut for a few days post demonetisation.

Thirdly, the electricity sector which was growing in the range of 0-3 per cent since June 2016, reported a surge in generation to 8.9 per cent. Coal based power generation touched its all-time high in November. The sudden improvement in generation is at odds with the fact that utilities were suffering from weak demand for quite some time and the power requirement in November 2016 was at a yearly low.

Coal production grew by 6.4 per cent in November to meet the rise in demand from coal-based power stations. Production rose after three consecutive months of fall. Also, a shift towards domestically produced coal caused by a surge in its international prices augmented production. Coal import volumes dipped by 7.6 per cent in October and 17.1 per cent in November.

Both coal and electricity have large weights in the IIP - 4.38 per cent and 10.32 per cent, respectively.

And lastly, the perennial problems like year-round constant weights of seasonal commodities and fluctuations in sample size helped the IIP report a healthy growth in November 2016. Production of sugar, which is a supply-driven industry, grew by a robust 21.2 per cent in November. Output of rubber and insulated cables rose shot up by 185 per cent, after recording steep falls for 12 months in a row. This was a pure low-base effect.

The whopping growth in production of these two items pulled up the IIP growth for November 2016 by over one percentage point.

CMIE STATISTICS
Unemployment Rate
Per cent
4.3 -0.1
Consumer Sentiments Index
Base September-December 2015
92.4 0.0
Consumer Expectations Index
Base September-December 2015
94.8 0.0
Current Economic Conditions Index
Base September-December 2015
88.7 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Mar 16 Jun 16 Sep 16 Dec 16
New projects 3.31 1.54 2.34 1.41
Completed projects 2.27 0.90 2.17 0.85
Stalled projects 1.04 1.32 0.39 0.79
Revived projects 0.62 0.43 0.51 0.17
Implementation stalled projects 0.92 0.50 0.58 0.80
Updated on: 28 Mar 2017 4:20PM
Quarterly Financials of Listed Companies
(% change) Mar 16 Jun 16 Sep 16 Dec 16
All listed Companies
 Income -0.2 -0.9 2.1 6.3
 Expenses 0.8 -0.3 1.9 6.7
 Net profit -29.7 -4.1 14.6 36.2
 PAT margin (%) 4.9 6.9 6.9 6.0
 Count of Cos. 4,452 4,409 4,366 4,313
Non-financial Companies
 Income -2.2 -2.5 0.6 6.1
 Expenses -4.0 -2.9 -0.2 7.6
 Net profit 3.9 9.6 26.6 20.3
 PAT margin (%) 6.1 7.4 6.9 6.1
 Net fixed assets 3.8 -9.2
 Current assets 3.1 8.1
 Current liabilities 10.6 11.6
 Borrowings 6.7 3.1
 Reserves & surplus 7.9 8.4
 Count of Cos. 3,485 3,456 3,424 3,394
Numbers are net of P&E
Updated on: 28 Mar 2017 4:28PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 11.9 9.4 4.7 0.6
 Expenses 12.1 9.3 4.7 0.8
 Net profit 1.1 -4.2 3.4 -13.0
 PAT margin (%) 3.6 3.2 3.3 3.2
 Assets 14.1 12.3 9.0 7.9
 Net worth 9.5 9.5 8.3 6.4
 RONW (%) 6.8 6.0 6.2 5.5
 Count of Cos. 23,431 20,686 19,475 15,131
Non-financial Companies
 Income 11.1 9.0 3.7 -0.6
 Expenses 11.4 8.7 3.8 -1.4
 Net profit -8.7 -5.6 -2.2 12.8
 PAT margin (%) 2.4 2.1 2.2 2.9
 Net fixed assets 12.8 11.3 12.4 11.0
 Net worth 7.8 8.4 6.8 5.4
 RONW (%) 5.5 4.8 4.9 5.9
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.0 1.9 1.9 2.1
 Net working capital cycle (days) 71 69 68 69
 Count of Cos. 18,019 16,227 15,305 12,140
Numbers are net of P&E
Updated on: 20 Mar 2017 1:24PM

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