May core output at 4-mth low

At 2.3%; four of 8 sectors contracted while others did well; experts divided on outlook for IIP

Output in eight important infrastructure industries, termed the core sector, grew at a four-month low of 2.3 per cent in May over a year before, compared to 4.2 per cent in April, with half of these seeing a contraction in production, official data showed on Monday.

This might impact the Index of Industrial Production (IIP), as the core sector constitutes 38 per cent of the index. However, some experts believe the low base of last year and favourable automobile numbers might save the month for IIP.

Output in four of the sectors — crude oil, natural gas, refinery products and steel — fell in May year-on-year.

In April, three of the sectors saw a decline in production; in May, steel also slipped into this category. Steel production fell two per cent against a rise of 3.1 per cent in April, refinery products was down 2.3 per cent against an earlier decline of 2.2 per cent, natural gas by 2.2 per cent against 7.7 per cent and crude oil by 0.3 per cent against 0.1 per cent.

In May, the other four sectors showed impressive growth, more so as the performance of some was dismal in 2013-14. These four are fertilisers, cement, electricity and coal, which grew by 17.6 per cent, 8.7 per cent, 6.3 per cent and 5.5 per cent in May, against a 11.1 per cent, 6.7 per cent, 11.2 per cent and 3.3 per cent rise, respectively, in April.

During the second half of FY14, coal production mostly fell, while in some months it recorded meagre growth. So, too, with fertiliser output. Barring September and November, cement production also saw meagre growth in the second half of the financial year, with the production stagnating in March.

However, electricity generation has been registering growth consistently since April 2013, except in June 2013. The reasons could be increase in household consumption compared to industry, coupled with earlier clearing of some major projects by the Cabinet Committee on Investment. Generation grew 8.7 per cent during April-May against 4.9 per cent in the same months of 2013-14.

Cumulative growth of the eight core industries rose 3.3 per cent in the first two months of the current financial year, against 4.9 per cent in the corresponding period of FY14.

In April, core sector had grown by 4.2 per cent and, hence, IIP showed a rebound of 3.4 per cent, after contracting in February and March. However, there is no one-to-one correlation between core sector data and IIP. For instance, the core sector rose to a five-month high of 4.5 per cent in Feburary 2014 but the IIP fell that month.

“Growth in industrial production will remain subdued until the budget comes out with some major policy announcement. Beside, it will take some time for industrial production to grow because the non-core areas, which form 60 per cent, are performing rather poorly,” said Arun Singh, senior economist, Dun & Bradstreet.

However, Aditi Nayar of ICRA said a favourable base effect and double-digit rise in merchandise exports in May would have boosted IIP activity. “Additionally, the y-o-y rise in passenger vehicle production after several months and sustained growth of two-wheeler output would support manufacturing growth in May, though production of commercial vehicles continued to contract,” she said.