Core sector output down 2.5%, first fall since 2005

The eight sectors, which have 38% weight in the IIP, grew 3.1% in January

In what could have an adverse impact on industrial growth in February, the output of the eight core sectors contracted 2.5 per cent during the month, official data showed today. A contraction in core sectors was last seen in July 2005, when the eight sectors declined 0.26 per cent, according to Ministry of Commerce and Industry data.

Today’s data may dampen policymakers’ hopes the industry and the overall economy would see a turnaround in the quarter ended March.

The eight sectors, which have 38 per cent weight in the Index of Industrial Production (IIP), grew 3.1 per cent in January. Though the base for February was high (7.7 per cent), the fall cannot be attributed to this alone, as sequentially, the index of core sectors fell 8.3 per cent, data released by the commerce ministry showed.

For February, IIP may rise, as it has a low base.

The cumulative expansion of the eight core sectors in the April-February period of 2012-13 halved compared to the corresponding period of 2011-12 — from 5.2 per cent to 2.6 per cent.

In February, five of the eight sectors — coal, crude oil, natural gas, fertilisers and electricity — saw declines in output.

None of the sectors expanded faster than in the year-ago period.

Natural gas production fell 20.1 per, cent against a decline of 7.6 per cent in February 2012. The sector hasn’t seen growth since February, 2012. Coal output fell eight per cent, partly because of the high base of 18 per cent growth in the year-ago period. Coal took a toll on electricity generation as well---the electricity sector’s output fell 4.1 per cent, against 8.6 per cent growth in February 2012. It is likely this would also have a negative impact on industrial growth in the coming months.

Soumya Kanti Ghosh, senior fellow, Indian Council for Research on International Economic Relations, told Business Standard, “This (core sector data) is not entirely unexpected because core sector growth has been persistently low. The February IIP growth is likely to reflect the low core sector growth. A moderate recovery might happen in March, but a turnaround is likely only in the second half of this financial year.”

Production of crude oil fell four per cent in February, compared with 0.3 per cent growth in the corresponding month last year. Fertiliser output fell four per cent, against 4.1 per cent growth in the year-ago period. While refinery production expanded 4.3 per cent, against six per cent in February, 2012, cement output grew 3.9 per cent, compared with 9.8 per cent in February, 2012. Steel production rose 0.5 per cent, against 8.7 per cent in February, 2012.

In January, industrial output increased 2.4 per cent, after contraction for two consecutive months. For the first ten months of 2012-13, industrial growth stood at one per cent, against 3.4 per cent in the corresponding period of 2011-12.

India’s economy is estimated to grow a decade-low of five per cent in 2012-13. In the quarter ended December, growth fell to a four-year low of 4.5 per cent, against six per cent in the corresponding period of the previous financial year.