Core sector growth falls to 18-month low

Index grows at 2.5% in Sept, may affect industrial output

The six infrastructure industries that account for more than a quarter of industrial production grew by 2.5 per cent in September, the slowest pace of expansion in 18 months.

This was the fifth straight month of deceleration for the index of six infrastructure industries, based on the production of crude and refined petroleum, coal, steel, electricity and cement. The index had grown by 3.9 per cent in August 2010 and by 4.3 per cent in September 2009.

This September, the growth was dragged down by a decline in refining of petroleum products and coal production.

“Coal has not done well and therefore electricity (grown by 1.3 per cent) has also not done well. I am not too concerned about the decline in petroleum refinery products as it keeps fluctuating. It might pick up later as September also witnessed a lot of rain which must have impacted the sectors,” said D K Joshi, chief economist with ratings agency Crisil.

While the decline in growth was on expected lines, the extent of decline surprised several analysts. Most economists have projected a broad trend of moderation in the core sector growth and the industrial production due to high base effect as well as wearing down of stimulus measures.

But there were concerns over the consistent deceleration in core sector growth. Besides, economists warned that given the 26.68 per cent weight that the core sector has in the Index of Industrial Production (IIP), the overall industrial growth could be affected in September.

“Given a more than 25 per cent weight of these core industries in the overall IIP, I expect a dismal result in the IIP data for September. This data add to the growing concern in the slowdown of industrial activity in India,” said Shanto Ghosh, principal economist with Deloitte India.
 

SLUGGISH Growth of six infrastructure industries (in %)
	Sept 2009	Aug 2010	Sept 2010	Apr-Sep 2009	Apr-Sep 2010
Crude Oil	-0.5	15.2	12.5	-1.2	10.2
Petroleum refinery   products	3.4	-2.3	-10.2	-3.6	2.6
Coal	6.5	1.0	-2.0	11.6	0.4
Electricity	7.4	1.4	1.3	6.4	4.0
Cement	6.5	1.6	5.2	12.3	4.7
Finished Steel	0.8	7.7	5.8	1.7	3.9
Overall	4.3	3.9	2.5	4.5	4.0

Joshi also had low expectations from IIP data for the month. “Now it is sure that IIP will not be in double digits,” he said.

Despite moderation in the growth rate, analysts expect the Reserve Bank of India to increase key policy rates next week.

Chief Economic Advisor Kaushik Basu had recently said that compared to the first quarter when gross domestic product grew by 8.8 per cent, the Indian economy would expand at a slower pace in the second quarter.