Low base of IIP may help it grow in February

Five of eight sectors saw a decline in output with natural gas moving down over 20% in Feb

In what could have an adverse impact on industrial growth for February, eight core sectors output contracted 2.5% for the month, first such fall since February, 2001, official data showed today.  This may dampen the confidence of policy makers that the industry and the overall economy would see a turn around from the fourth quarter of 2012-13.

Five of eight sectors saw decline in output with natural gas moving down over 20% in February, 2013 and coal eight%, while none of the sectors expanded faster than its year ago performance.

Eight core sectors, which have almost 38% weight in the Index of Industrial Production (IIP), grew 3.1% in the previous month. The base in the February of the previous year was too high at 7.7%, but the fall could not be attributed to this alone as the index of core sector went down 8.3% in February, 2013 sequentially, the data released by the commerce & industry ministry revealed.  

This dismal show of core sector meant that the rest 62% of IIP has to really do well to move the index on high growth in February. However, IIP had a low base in February 2012, which may help it grow in February of 2013.  

The cumulative expansion of the eight core industries in April-February period of 2012-13, halved to 2.6% from 5.2 growth in the corresponding period of 2011-12, the data released by the commerce and industry ministry showed.

Five sectors that saw fall in output are—coal, crude oil, natural gas, fertilizers and electricity.

Natural Gas production contracted 20.1% against a decline of 7.6% in February 2012. In fact, its production never saw a growth since February, 2012, exhibiting problems related to the sector.

Coal output fell 8% in February, partly because of high base of 18% growth in a year ago period.

Coal had its impact on electricity generation as well which went down 4.1% in February, 2013 against 8.6% growth in the same month of 2012. In fact, it was electricity generation that is providing some support to the industrial production, which has been witnessing subdued growth of late. Fall in electricity is bound to have a negative effect not only on February industrial growth data but also in the coming months.

Soumya Kanti Ghosh, a senior fellow with think tank ICRIER, told Business Standard,""This (core sector data) is not entirely unexpected because the 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 turn around is likely only in the second half of the current financial year."

Among other sectors, production of crude oil moved down four% in February 2013 compared to 0.3% growth in the same month last year.  Fetilizers output was down four% against a growth of 4.1% growth over the period.

Petroleum Refinery production expanded by 4.3% in February 2013, but the expansion was lower than six% in the same month February 2012.

Cement output grew by 3.9% in February 2013, less than 9.8% in February, 2012.

Steel production expanded 0.5% in February 2013, against 8.7% in the same month of the previous year.

Industrial output grew 2.4% in January, 2012-13 after contraction for a straight two months. For the first ten months of last financial year, industrial growth stood at one% against 3.4% in 2011-12.

India's economy is estimated to have grown a decade-low of five% in 2012-13. Its growth fell almost a four-year bottom of 4.5% in the third quarter. The fourth quarter numbers would come by May end.