Core sector output jumps 6.8%, rise may not last

The flurry of pleasant data at the year-end continues. After food inflation fell to a four-year low of 1.81 per cent and Moody's upgraded India’s debt ratings, the eight core industries have now seen a steep rise in production to a four-month high of 6.8 per cent in November. This would have positive repercussions for industrial growth and GDP.

The data came a month after these core industries grew just 0.3 per cent in October, and industrial production contracted 5.1 per cent that month. The index of eight core industries has 38 per cent weight in the index of industrial production.

The industrial production trend in the last eight months has been in consonance with core sector growth, barring the exception of July, when the eight core industries expanded 7.8 per cent but factory output grew just 3.7 per cent.

High November growth could also be partly explained by a low base of 3.7 per cent in the same month last year. Core industries expanded by a whopping 6.2 per cent in December last year, so it would be interesting to watch the data for next month in the light of the high base.

Also, three industries — crude oil, natural gas and fertilisers — continued to see contraction, albeit the number was higher at five industries last month.

For the first eight months of this financial year, the eight industries' production grew 4.6 per cent compared to 5.6 per cent in the corresponding period last year.

Coal turned out to be the saving grace, with its output increasing by a 20-month high of 4.9 per cent in November year-on-year. “It is certainly a positive development, which will have an effect on inflation. Since coal is a major input in manufacturing, this will ease manufacturing inflation,” said Arun Singh, senior economist, Dun & Bradstreet.

Electricity saw a rapid growth in November at 14.1 per cent, the highest in more than a year. Crude oil and natural gas saw a contraction of 5.6 per cent and 10.1 per cent, respectively. Cement growth was again robust at 16.6 per cent compared to flat growth in October.

“I expect the index of eight core industries will grow 4.5-5 per cent in the next three-four months,” said Singh.

India's economic growth plunged to a nine-quarter low of 6.9 per cent in the second quarter of this financial year. Along with 7.7 per cent growth in the first quarter, it has delivered 7.3 per cent growth in the first half of 2011-12.