Core sector growth slips to 2.3% in December

India’s core infrastructure sectors expanded by 2.3 per cent in December 2008, lower than the 3.2 per cent rise recorded in the same month a year ago, due to poor performance by steel and electricity sectors, which constitute nearly 60 per cent weight in the index.

In November, the index of six core industries grew at 1.8 per cent. During April-December 2008 period, core sector production expanded 3.5 per cent against 6 per cent in the corresponding months the previous year.
 

INDEX OF SIX CORE INFRASTRUCTURE INDUSTRIES                                                 (December 2008)
Sector	Weight (%) in IIP	Dec ’07 % growth	Dec ’08 % growth	Apr-Dec ‘07 % growth	Apr- Dec ‘08 % growth
Crude petroleum	4.17	-1.4	-0.3	0.3	-0.5
Refinery products	2	1.9	3	7.5	3.7
Coal	3.22	8.4	9.4	3.5	10.1
Electricity	10.17	3.9	0.7	6.6	2.6
Cement	1.99	4.4	11.6	7.7	7
Finished steel (carbon)	5.13	1.8	-0.8	6.4	2.7
Overall	26.7	3.2	2.3	5.9	3.5

The six core sectors — crude oil, petroleum refinery products, coal, electricity, cement and finished (carbon) steel — account for just over a quarter of the Index of the Industrial Production (IIP), which economists predict to grow marginally in December 2008.

“The worst effect of industrial slowdown is approaching an end. This will get reflected in IIP which is expected to grow 2.4 per cent in December,” said Soumendra Dash, chief economist of credit rating agency CARE. “The fiscal stimulus and easy monetary measures are showing the results,” he added.

The IIP had dipped 0.3 per cent in October 2008, but grew 2.4 per cent in the following month. IIP data for December are expected to be released in the first week of February.

“We are not likely to see a dip in the IIP in the months up to March 2009. But the growth in industrial production is expected to be muted,” said Shubhada Rao, chief economist, YES Bank.

Electricity generation during the month under consideration was the lowest in the April to December period, as demand for power waned due to lesser industrial activity.

“This is because of pervasive lull in industrial activities. The slowdown in effective demand is playing a key role in the demand in the manufacturing sector and it is having a cascading effect in the decreasing demand for electricity,” said Dash.

The slump in electricity generation in December can also be attributed to lower output from hydel and nuclear plants. Only thermal plants produced more electricity in December compared to the same month in 2007.

Production of finished (carbon) steel, which has a 5.13 per cent weight in the IIP, dipped close to 1 per cent, as steel companies reduced factory output to adjust for slowing demand from infrastructure and auto sectors — the two key demand drivers — in the backdrop of the global economic crisis.

Industry sources maintain that steel factories have seen some kind of revival in demand for the metal in January.

Cement production remained robust in December last year and witnessed maximum expansion in the April-December period. In the quarter ending December, one sees a revival of cement production as monsoons withdraw.

Coal production also recorded strong growth as thermal plants needed the mineral to produce electricity.

Data released today also showed that crude oil production slumped, as Indian oil fields like offshore rigs in Bombay High produced less. There has been no major discovery of oil fields in the country in the recent past even as output from existing fields decreased.

Production in petroleum refineries also expanded more than the levels seen in the year-ago month as consumption of fuels went up.