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India Economy: IIP Nov-19 - Growth makes a comeback, albeit on a low base

Nov-19 IIP growth came in at 1.8%yoy, ahead of street expectations of 0.3%yoy increase. The series has exhibited an output growth after three consecutive months of decline, albeit on a low base (Nov-18 growth at mere 0.2%yoy). Given that most of the underlying IIP subcomponents have exhibited some sort of improvement, even though on a low base, we chose to look at this data point in a relatively positive light. The improvement here comes in along with early green shoots seen in other high frequency data points like: a) Robust air passenger data and growth in petroleum consumption in Nov 2019, b) 6% growth in GST collection in Nov 2019 on a high base, following two months of decline in collections, c) decline in core industries coming off mom in Nov 2019, with most underlying series exhibiting improvement. While it’s too early to ascertain the sustainability of the recovery, a synchronous uptick in variety of high frequency indicators is definitely a good news. A durable risk to growth could be softness in government expenditure, as it could prolong the slowdown. However, we believe the government would choose growth over fiscal discipline thus facilitating growth recovery. Consequently, we expect FY20 fiscal deficit to settle at 3.8% of GDP. We also expect a slow but durable recovery end FY20 onwards.

Summary of the data release:

• After three consecutive months of decline, Nov-19 IIP finally moved upwards at the rate of 1.8%yoy. The November print for IIP is better than that of Core industries, which saw a -1.6%yoy decline in Nov-19, though the extent of decline clearly came off for core industries too.
• While the yoy growth is certainly encouraging, we will chose to mindful of the fact that this growth comes on a low base with Nov-18 growth at a mere 0.2%yoy.
• Also, 2 year CAGR growth and 6 month moving average change for the headline series continue to be weak at 1% growth and -0.4% decline respectively. However, on the positive side, decline momentum in 3 month moving average series came off.
• On economic activity side – there was a recovery in all three sub-components. While mining and manufacturing output turned positive with 2% and 3%yoy growth respectively, extent of decline in electricity output came off.  
• Usage side also saw recovery for all sub-components with extent of decline coming off for primary goods, capital goods, infrastructure goods and Consumer durables. Intermediate goods continued to be the strongest growth segments.

·      Other high frequency indicators (like air passenger growth, petroleum consumption, monthly GST collection etc.) have also exhibited some improvement in their Nov-19 output. Though it’s too early to ascertain the sustainability of recovery, we remain positive on return of slow but durable growth by end of FY20, provided that the government expenditure doesn’t see any significant cuts.