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Raghuram Rajan cautions against being 'overly influenced' by IIP

The IIP for October grew at 8.2 per cent over the previous month, government data showed yesterday.

Raghuram Rajan, the Chief Economic Advisor in the Finance Ministry, cautioned against being “overly influenced” by the Index of Industrial Production (IIP) numbers for October, saying there is a base effect.

The IIP for October grew at 8.2 per cent over the previous month, government data showed yesterday, but most analysts sounded a note of caution saying the 0.7 per cent contraction in September coupled with the festival season in October-November may have been the reason for the spike, and it does not necessarily imply a turnaround.

However, Mr Rajan said the Indian economy is stabilizing and can revive domestic sources of growth. Exports are down because India is influenced by global developments, he added.

India's trade deficit eased marginally in November 2012 to $19.3 billion (Rs 1,04,834.43 crore) compared to $21 billion in October 2012, government data showed. Exports fell 4 per cent year-on-year to $22.3 billion (Rs 1,21,138.53 crore) in November, while imports jumped to $41.5 billion (Rs 2,25,421.18 crore).

“There is scope for a downward revision. If the fine print suggests that it is on the back of two or three sectors which have shown really good growth, then we should question the veracity of the numbers,” Abheek Barua, chief economist at HDFC Bank, told NDTV.

Brinda Jagirdar, chief economist at the State Bank of India, told Reuters that the uptick in industrial performance is optical, masking the reality, largely because of base effect.

“I don't expect this kind of buoyancy in manufacturing to sustain going forward as five industrial sectors are showing negative growth. I don't think the RBI (Reserve Bank of India) should be swayed by this number and should address the underlying weakness in the economy by cutting rates," she added.

Shubhada Rao, chief economist at Yes Bank, told Reuters that the festive-related buoyancy had pushed the IIP number. “Overall, the seasonally adjusted month-on-month growth is 2.7 per cent. However, stripping out the festive-related buoyancy, we continue to expect gradual pace of recovery in the overall economic activity.”

Factory output accounts for a little more than 15 per cent of India's economy, which has grown at annual rates of 5 to 5.5 per cent each quarter since the start of the year, the slowest rates in nearly three years.

Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission, told NDTV last week that expectations should be realistic as reform policy announcements have a lag effect of at least six months before the benefits start to show up.

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