Muted core sector growth dims IIP recovery hopes

The eight core industries recorded a muted 2.1 per cent rise in August, compared to the year-ago period, dimming hopes of a revival in industrial growth. In July, the core industries had expanded one per cent.

Four of the eight sectors saw contraction in output, compared to a year earlier. However, the coal and refinery products segments boosted the overall numbers. Expanding for the tenth consecutive month, in August, the coal sector recorded robust 11 per cent growth. The output of refinery products rose 8.4 per cent, compared with 3.5 per cent in July. The eight core industries account for 38 per cent weight in the Index of Industrial Production (IIP), which rose just 0.1 per cent in July.

The jump in coal output-— from 2.1 per cent in July to 11 per cent — may be attributed to a low base. In August 2011, coal output had contracted 15.2 per cent, against growth of 2.5 per cent in July 2011. Economists agreed a low base had contributed to growth in the

coal segment, adding in the first half of 2011-12, mining was stalled in large parts of the country due to floods and environmental issues. “The real picture on whether coal production has actually improved or not will emerge from November,” said an analyst. The output of natural gas fell 13.5 per cent in August (the sector had seen the same fall in output in July). The sector has seen contraction for about a year. In the IIP for July, the mining sector had contracted 0.7 per cent. “Mining continues to perform poorly, as there doesn’t seem to be any improvement in the natural gas sector,” said an economist.

The crude oil sector contracted for the third consecutive month, falling 0.6 per cent, while cement output fell 2.4 per cent. “Cement is a seasonal component. Generally, during the monsoon season, cement production drops due to lack of demand. It picks up from October,” said an analyst.

Steel output remained a concern; it rose only 2.7 per cent in the five months ended August, against 9.9 per cent in the year-ago period. In August, steel production rose 1.8 per cent, compared with 0.8 per cent in July.

In the first five months of this financial year, the eight core sectors grew just 2.8 per cent, compared with 5.5 per cent in the corresponding period last year.