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Industrial activity reviving April IP

June 14, 2009

India’s industrial production (IP) increased 1.4% YoY, well above the Bloomberg survey of -0.1% but slightly below our estimate of 2.0%. It is quite likely that revised data (due next month) will show the April IP growth at around 2.0%.

The March outcome was revised significantly to show a much smaller decline of 0.8% YoY, compared to the -2.3% announced previously. This means that along with other revised data, the recently announced GDP growth for FY3/09 could revised to be closer to 7.0% from 6.7%.

Manufacturing output grew 0.7% YoY in April, following two consecutive months of declines. Mining output increased 3.8% YoY, while electricity production was unexpectedly strong, gaining 7.1%.

Apart from higher electricity output, the production of intermediate goods surged 7.1% YoY in April, probably hinting at better IP data in the coming months.

April is the start of India’s new fiscal year, and it has begun on a positive note. The industrial activity will gain more traction as the favourable effect of lower bank lending rates and continuing fiscal boost offsets the still weak export sector. Improving investment spending in the months ahead will also positively affect IP.

The upcoming Budget will emphasise fiscal consolidation, kickoff disinvestment in baby steps, extend the coverage of populist social programs, and announce limited sector-specific sops for exports, IT and autos. The Fringe Benefit Tax could be removed but Securities Transaction Tax will likely stay for now. The government could enjoy a windfall of up to US$ 8 – 10bn windfall from 3G/WiMax.

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