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    Manufacturing growth of just 1.6% presents an ambivalent picture: Madan Sabnavis

    Synopsis

    “In my view, the RBI would probably continue with one more rate increase in February and could reach 6.5% after which, there could be a longer pause, depending upon how the inflation numbers look. While overall the number does look good for the entire year, we could still end up with a growth rate of around 5% to 6%. Looking at the specific industry performance within the manufacturing sector, that is what should actually be catching our attention.”

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    “While IIP numbers are good, if we juxtapose that with what the GDP data had to say about manufacturing which speaks of a growth of just 1.6%, it does present an ambivalent picture. In a rather broader manner, I would say this is good news in the statistical sense but probably a lot has to be done on the economic front to make sure that industrial growth remains robust in the coming months,” says Madan Sabnavis, Chief Economist, Bank of Baroda


    According to the first advance estimates of GDP released by the National Statistical Office (NSO), India’s GDP is estimated to grow at 7% for FY2022-23. Inflation is also slated to moderate below 5% by April 2023. For three successive years ending 2023-24, India will be among the fastest growing major economies. Isn’t the news good?
    Given that there has not been a happier picture for the whole of 2022, ever since the Ukraine war started and there was talk of a recession in the west, these particular numbers, at least statistically look very good. I say statistically because yes inflation has come down and will probably continue to move in the downward direction but remain above 5% for the rest of the year.

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    While IIP numbers are good, if we juxtapose that with what the GDP data had to say about manufacturing which speaks of a growth of just 1.6%, it does present an ambivalent picture. In a rather broader manner, I would say this is good news in the statistical sense but probably a lot has to be done on the economic front to make sure that industrial growth remains robust in the coming months.

    When you look at the internals, what is the story that emerges as far as the IIP numbers are concerned?
    One trend which we have seen earlier was that all the indices which are related to infrastructure and finally to what the government does in terms of spending, have tended to perform better. It really comes out from the core sector data which has shown that industries like cement and steel have consistently tended to do relatively better than the other segments.

    But today when I am looking at even the consumer goods segments – both durables as well as non-durables – we have seen an uptick in positive growth. But it comes with a negative growth rate and this can be probably explained by the fact that a pent-up demand story unfolded during this festival time and it will start getting diluted as we go ahead.

    So while overall the number does look good for the entire year, we could still end up with a number of around 5% to 6%. Looking at the specific industry performance within the manufacturing sector, that is what should actually be catching our attention.

    The last point I will make is that so far in the first and second quarters, looking at the financial performance of the manufacturing sector, we have not really seen a rosy picture. We have actually seen profits follow decline which means any value addition has been growing in a very marginal rate and that is getting reflected in the GDP growth numbers. So numerically it is a good number and probably it is a good thing to be for the future, but I would not really rejoice too much on this particular number.

    Do you think that this is going to impact the rate hike cycle as far as the RBI is concerned? What do you see happening there?
    In my view, the RBI would probably continue with one more rate increase in February and could reach 6.5% after which, there could be a longer pause, depending upon how the inflation numbers look. We should remember that the inflation numbers have been affected a lot by the base rate and when the inflation number moves on the basis of the base effects, it is not a very convincing thing as far as the monetary policy committee is concerned.

    So they would be looking at internals when you are looking at the core sector. The core inflation number continues to be sticky, given that a number of corporates have mentioned that they are still in the process of passing on the higher input costs. So as long as this process is on, this particular component of inflation which is more influenced by monetary policy decisions rather than food inflation would be closely watched by the RBI.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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