Mining & Electricity growth hint at industrial activity revival

IIP numbers paint story of rebound for industrial sector

An improvement in mining and electricity in the Index of Industrial Production (IIP) for March 2016 could hint at a rebound in industrial activity.

Experts said with surplus coal available and a comfortable power supply situation, there could be a room for growth in these sectors.

The mining sector grew five per cent, year-on-year (y-o-y), in February. Over April-February 2015-16, it grew 2.4 per cent, up from 1.5 per cent in the same period of the previous year. Historic high coal production and availability led to the improvement in mining growth. Coal India’s production growth was nine per cent at close to 500 million tonnes (mt) in 2015-16. Current coal availability at power stations is at a record high of 26 days, with not a single power plant in the country facing fuel shortages.

“Last February, private coal production was nil as coal block allocations were cancelled. Now that some mines have started production, it has contributed to the growth of the mining sector. As more mines start production, mining could witness further growth. However, the uptake needs to be healthy as well,” said a coal sector expert.

As a major beneficiary of enhanced coal production, electricity generation grew 9.6 per cent, y-o-y, in February, higher than in the previous four months.

“Growth in electricity consumption in the January-March quarter must be seen with the massive growth in furnace oil and petroleum coke consumption, signifying genuine improvement in industrial activity. These definitely point to the beginning of an industrial recovery,” said Debasish Mishra, partner with Deloitte Touche Tohmatsu India.

Electricity generation in April-February 2015-16 rose 5.1 per cent, considerably slower than the 9.1 per cent rise in the same period of the previous year.

“Electricity growth owes itself to improved coal availability. It is early to indicate a recovery in the power market. The likelihood is high that electricity generation growth is because of increased industrial consumption,” said a power market analyst.

Current power demand from states is the as same as a year ago. In the past three months, the cumulative average power demand has remained in the range of 1.37-1.4 lakh Mw. Power demand has witnessed no major spike since September 2015, when it had climbed to 1.5 lakh Mw.