14 December 2011

India into Another Trouble: IIP Downgrade

India now has another chapter to add to its book of records. Events like Rupee hitting record low, slowdown of the economy, the rising debt of India and the untamable inflation have already made their presence in the book. Joining them in the Index is the Index of Industrial Production (IIP) numbers which hit 5.1 percent record low since June 2009. All of these have made it into list by making a milestone with their negative numbers. As a result, it seems the crisis-hit India is in no position to infuse confidence that will boost the falling economy. Looks like India just opened Pandora's Box of troubles. Or is 2011 signifying the advent of change in India?

The index of industrial production, or IIP, which measures the growth in output from various sectors of the economy like mining, manufacturing and electricity, weighed in at 5.1 percent for the month, the first time since June 2009 that industrial production has entered negative territory compared to 1.9 percent in September and 11.3 percent in October 2010. The fall was driven by a 6 percent fall in manufacturing and a fall of 7.2 percent in mining, as estimated by Deutsche Bank.

Inflation, economy, rupee and debt numbers may sound all jeebrish. And so will the IIP numbers degrading. Here is a brief way to explain how the IIP figures is a big disappointing number and what those numbers really mean for you.

1. Job seekers:

Job seekers
IIP is directly related to the manufacturing and mining numbers which forms the pivotal sectors of the Indian economy. The low numbers strike an imbalance between demand and orders in these industries. As orders go down, companies have to invest less and that means less manpower requirement, which mean less hiring has to be done. If you are a graduate in mechanical or hold expertise in industrial sector then you will see a dip in the job openings in these sectors. Economic experts say the manufacturing sector is likely to see job losses also.

 2. Stock Investor:

Stock Investors
The Euro zone crisis has already raised eyebrows of Investors around the world and has put them in dilemma. Adding to the fact that Indian equities are the worst performing shares in Asia, the IIP numbers will make investors more nervous and depressed. The tumbling of IIP numbers will mean lower output by industrial companies, which in turn will reflect on the revenues and profits of the company. If the profit of the company is low then the earnings per share decreases. As EPS decreases, stock valuation also downgrades. Our major stock investors are foreigners who have already lost confidence in us after seeing the sensex being so very volatile. They are now searching for alternatives or are investing in other places which are much crisis proof. The corporate sector is already seeing a black slash with foreign investors being jittery in investing in any news projects.
 3. Shoppers/ producer/exporter:

For shoppers this could be a blessing in disguise as the poor demand for goods and services could prompt manufacturers to offer discounts and freebies to attract shoppers to stores. For businesses using locally-priced inputs, there might be a silver lining in terms of costs, which could come down. However, if the prices of those inputs are based on international prices, they might not be so lucky because a falling rupee will increase prices in local terms. It's a double whammy: they have to deal with falling demand and rising costs. Declining industrial output will also mean lower exports. Only late last week, Commerce Secretary Rahul Khullar said exports in November crawled by 3.7 percent, the lowest pace in two years. That will increase pressure on the rupee (lower exports against higher imports, which increases demand for foreign exchange), which already dived to a new lifetime low of 53.14 against the dollar on Tuesday on the back of abysmal IIP data.