December core output at 3-month low of 2.4%

The eight infra industries ended 2014 on a subdued note; could affect IIP

Annual growth in production of the eight key infrastructure industries declined to a three-month low of 2.4 per cent in December, compared with 6.7 per cent the previous month and four per cent in December 2013. This is likely to have a negative impact on the industrial growth numbers for the month, as these industries have a weight of 38 per cent on the Index of Industrial Production (IIP). The Reserve Bank of India might consider the slow rate of output growth ahead of its monetary policy review on Tuesday.

In the first nine months of 2014-15, the eight core sector industries grew 4.4 per cent, against 4.1 per cent in the corresponding period the previous year, official data showed on Monday.

The December numbers came as a dampener, especially as there had been some signs of a turnaround in India’s industrial growth the previous month. Industrial output had in November grown 3.8 per cent on a year-on-year basis, after contracting 4.2 per cent in October. Now, if industry does not perform well in December, any theory of a reversal of slowdown might have to be revisited.

This could also affect the rate of economic growth for 2014-15 — India’s gross domestic product (GDP) had expanded 6.9 per cent in 2013-14 — since the current financial year’s numbers will be based on IIP in so far as industry is concerned. Though the annual survey of industries for 2013-14 has not yet been released, the figures for the previous year will have a bearing on GDP numbers for 2013-14.

“A subdued performance of the core sector industries and merchandise exports in December (exports contracted 3.8 per cent) suggest the industrial production data for that month will reveal muted growth,” said Aditi Nayar, senior economist with ICRA. She, however, believed RBI would take a pause on the interest rate front in its policy review on Tuesday, and resume lowering the rate only after the Budget presentation  on February 28.

During December, four of the eight industries —crude oil, natural gas, fertilisers and steel — saw contraction in output, compared with three the previous month (steel had seen growth in November). None of the eight grew at a double-digit rate in December; in November two (cement and electricity) had.

“The broad-based moderation in core sector growth in December is a cause for some concern,” Nayar said.

Cement production rose only 3.8 per cent, against 11.3 per cent in November. This was despite a low base of 1.2 per cent in December 2013. Growth in electricity generation was down to 3.7 per cent from double-digit growth rates in the previous two months. Electricity generation has expanded at double-digit rates in six of the first nine months of this financial year. The slowdown in its growth — if that persists for a few months — will have adverse impact on other industries, too.

Coupled with steel production, which fell 2.4 per cent in December, a marginal rise in cement production signifies a slowdown in construction.

Besides, natural gas production contracted 3.5 per cent, fertilisers 1.6 per cent and crude oil 1.4 per cent. These industries had fallen 2.9 per cent, 0.1 per cent and 2.8 per cent, respectively, in November.

Coal production saw the biggest growth (7.5 per cent), against 14.5 per cent in November. However, that could be because of a low base of 1.1 per cent in December 2013. It was followed by refinery products, which grew 6.1 per cent, against 8.1 per cent in November. Again, the base was too low for this industry — the production had declined 1.9 per cent in December 2013.