August core sector growth picks up to 2.6%

Steel falls as compared to last year; fertilisers continue to grow the most

Growth in eight core sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity — increased to 2.6 per cent in August after a slower 1.1 per cent in July. However, the 2.2 per cent cumulative growth in April to August of FY16 still remains less than the corresponding figure previous year, which was 5.6 per cent, according to data released by the Union ministry of commerce and industry on Wednesday.

In March and April this year, the eight sectors, which have a weightage of nearly 38 per cent on the Index of Industrial Production (IIP), had witnessed contractions of 0.1 per cent and 0.4 per cent, respectively. However, in May and June, the core sector expanded 4.4 per cent and three per cent, respectively. Madan Sabnavis, chief economist at CARE Ratings, said though month-on-month figures show growth in all sectors other than steel, the cumulative figures for the April-August period, showing lukewarm growth in most sectors, should be kept in mind.

All sectors posted growth other than steel, which continued to contract 5.9 per cent. Last month, it had started falling 2.6 per cent. Its cumulative index during April-August in 2015-16 showed no growth over the corresponding period of the previous year when it grew 6.6 per cent. Generally indicative of the infrastructure growth in the country, steel figures hint at stagnant growth in the sector.

According to Aditi Nayar, senior economist at Icra, the import duty hike and depreciation in rupee narrowed the gap between the domestic steel price and the landed cost of imported steel; the same had remained high on an absolute level prior to the impact of the safeguard duty.

Natural gas recovered the most with a monthly 3.7 per cent growth compared to a 4.4 per cent fall last month. This was the first time the sector rose in the past year. However, the cumulative index showed a 2.7 per cent contraction, a slight improvement over the 5.8 per cent contraction in the corresponding period a yea ago.

Crude oil followed suit with a 5.6 per cent increase compared to a 0.4 per cent fall in the previous month. It also rose 0.5 cumulatively over the past five months, which is better than the corresponding figure last year, which was a 1.3 per cent fall.

The largest increase has been in the fertiliser sector with a 12.6 per cent growth, larger than the 8.59 per cent increase last month. The cumulative figure for fertilisers showed a 5.9 per cent rise in the five-month period, which is higher than the 2.8 per cent rise in the corresponding figure for the previous year.

The power sector showed marginal growth with coal registering a monthly increase of 0.4 per cent, marginally higher than last month's 0.3 per cent rise. The 4.6 per cent cumulative increase is also lower than its corresponding figure in the preceding year, which was 7.7 per cent.

Electricity, however, grew 5.6 per cent on a monthly basis. The 2.8 per cent cumulative rise was lower than the corresponding figure last year, showing a 11.7 per cent uptick.

Economists and analysts suggested the continuing favourable base effect suggests that IIP growth would display a considerable uptick in August 2015 relative to the marginal 0.5 per cent recorded in August 2014.