Descibing the official data on the index of industrial production (IIP) for November 2016, during which demonetisation was announced, as a "false positive", Crisil Research has said that the latest IIP figures do not reflect the true condition of the Indian manufacturing sector.
Belying popular expectations, India's factory output, as measured by the IIP released earlier this month, rose 5.7 per cent in November, the first month of the government's demonetisation drive. Index of Industrial Production in October had declined by 1.81 per cent, while there was a 3.4 per cent slide in the corresponding month of last year.
"The index of industrial production grew by 5.7 per cent on-year in November, on account of a weak base. Going by the production trend in some sectors such as auto, next month's (December) IIP growth data may be more indicative of the impact of demonetisation," said a note by Crisil, a subsidiary of American ratings agency Standard & Poor's.
"The IIP base year has not been updated," said Crisil Chief Economist D.K. Joshi.
He explained "false positive" as a term used in data analysis.
"The term implies that the growth rate indicated is too high. It was expected to be in the negative zone as November was the first month to have captured the impact of demonetisation," Joshi said.
"IIP had fallen by 1.8 per cent in October. In November it suddenly shoots up, and so we say it is not a true reflection of the condition of manufacturing," he said.
"Such month-to-month the data is too volatile, it cannot be used to make long-term projections," he added.
Besides, the cumulative growth of the country's factory output for the April-November period at 0.4 per cent, was much lower compared to the cumulative growth of 3.8 per cent during the corresponding period of the last fiscal.
Prime Minister Narendra Modi had on November 8 announced demonetisation of Rs 500 and Rs 1,000 currency notes, saying the move was aimed against black money, counterfeit currency and terror financing. The unprecedented measure set off a massive cash crunch, while citizens were given till December 30 to deposit the old notes in the banks.