Core sector growth decelerates to 13-month low

Growth in six infrastructure industries slowed to 3.7 per cent during August, primarily due to a sharp dip in production of petroleum refinery products. This is the lowest growth rate in the infrastructure sector since July 2009.

Core sector growth stood at 6.4 per cent in the corresponding period in 2009 and at four per cent during July 2010.

Analysts expect infrastructure growth to put a downward pressure on the Index of Industrial Production (IIP), which is expected to moderate to single digit level in August, as against a growth of 13.8 per cent in July. The six infrastructure industries contribute 26.7 per cent of the overall IIP.

“This is definitely going to put a downward pressure on overall industrial production. This is definitely not a good sign that infrastructure is not doing well and it is not a trend that will sustain growth,” said D K Joshi, chief economist with ratings agency Crisil India.

But considering that growth in industrial production has been primarily guided by growth in capital goods and has been robust despite a moderating trend in the core sector, the downward effect might be marginal.

“The growth in sectors is very volatile and industrial growth has been led by capital goods. Therefore, that is the sector one should watch out for. The fall in petroleum refinery production is quite sharp; however, it is nothing unusual, such fluctuations keep happening,” Joshi added.

In July, the 13.8 per cent growth in industrial production was led by a 63 per cent growth in capital goods production, even as the infrastructure sectors registered a marginal growth of four per cent.

On a sequential or on a month-on-month basis, all six sectors, except finished steel, have registered sharp deceleration. Growth in production of crude oil was highest during the month at 15 per cent, which was, however, lower than the growth of 15.8 per cent registered in July.

Petroleum refinery products registered the sharpest fall among all sectors and registered a negative growth of 2.3 per cent against an impressive 13.7 per cent in the previous month.

Finished steel production grew at 7.7 per cent in August, as against a negative growth of 0.9 per cent in July. Growth in coal, electricity and cement production have decelerated to one per cent, one per cent and 1.6 per cent, respectively, against 4.5 per cent , 4.1 per cent and -0.2 per cent in July 2010.

On an annual basis most sectors, except crude oil and finished steel production, registered sharp decelerations. 

Chart analysis