The Index of Industrial Production (IIP) came in at a shocking -2% in November 2013, despite a fairly strong showing by Electricity and Mining.

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IIP has been very shifty. Even October’s numbers were revised UP marginally, from a first reported -1.81% to a revised -1.57%.

The broad components are like this:

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The IIP actually follows the Manufacturing index (whose weight is 75% in the IIP). Though Mining and Electricity were positive, manufacturing has been hugely impacted at +3.5%.

In the use-based indexes, the worst performer has been consumer durables.

 

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Things are looking very tough for the manufacturing sector. If Inflation continues to be high we have the problem of low growth and high inflation, which is an issue that can only be sorted through very high interest rates, regardless of growth implications. If inflation were to ease off, then a cut in rates is likely to stoke inflation first and growth only later, because that’s the nature of the stagflationary beast.

At this point, any rate cut will be temporary, but this might provide a reason for RBI to not hike rates later this month.

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