Capital poser

Does the just released index of industrial production (IIP) for February 2009 signal good times ahead or bad? That���s the puzzle policymakers would give their eye-teeth to figure out. Add inflation numbers that show the rate of inflation at a nominal 0.26% and the ���conundrum��� is complete. Only the exceptionally brave or foolhardy would venture to take a call on the all-important question: is the worst behind us? All we would venture to say is we are bearing up much better than many others. Japan���s industrial output, for instance, fell 9.3% in February, the fifth consecutive monthly fall, Germany���s 2.9% and Italy���s 3.5%. The 1.2% decline recorded by Indian industry in February seems almost modest in comparison. At 2.8% industrial growth in the 11-month period (April-February 2009) is, doubtless, far below the previous year���s growth of 8.5%. Nonetheless there are some bright spots. Prime amongst these is the robust performance of the capital goods sector that has grown at over 15% in January and February. While welcome in itself, this does not entirely tie up with growth numbers in user industries that might have been expected to perform in tandem. Of course, there could be a lagged effect in which case we might see better performance here in the months ahead.

No less encouraging is the revision in the growth number for January 2009 from negative to a marginally positive growth of 0.4%. Together with the earlier revision for October 2008, this means February is the first month to record a decline after the slight fall of 0.6% in December 2008. Demand seems to be holding up, going by February���s near 6% growth in consumer durables, recent reports of enthusiastic response to Nano, revival of housing demand and the rise in steel and cement prices. How much of this is a temporary blip on account of the Sixth Pay Commission largesse remains to be seen. To the extent rural demand, riding on the back of a good agricultural year and higher support prices, is also holding up, we see room for cautious optimism. A lot will also depend on when the global economy recovers. Stock price movements these past few weeks do appear to indicate a quicker recovery for India, if collective market intelligence is anything to go by.