November core sector output at five-month high of 6.7%

In Nov 2013, it was at 3.2%; Apr-Nov core growth at 4.6% vs 4.1% y-o-y

The output of eight crucial industries grew by a five-month high of 6.7 per cent in November, marginally higher than 6.3 per cent in the previous month. The output had risen 3.2 per cent in November last year.

According to official data, issued on Wednesday, core sector output —  coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — rose 4.6 per cent in the first eight months of the current financial year, higher than the 4.1 per cent in the corresponding period last year.

The Index of Industrial Production (IIP) contracted by a three-year low of 4.2 per cent in October, despite core sector, which has almost 38 per cent weight in the Index, rising over six per cent. As such, a straight relationship between the core sector and industrial production does not exist.

The core sector figures were mainly driven by coal output (up 16.2 per cent) and electricity generation (13.2 per cent) in October. It was more broad-based in November. Coal, refinery products, cement and electricity generation saw big growth.

Coal production, with a weight of 4.3 per cent in the core sector index, grew 14.5 per cent, the second straight month of double-digit growth, indicating a pick-up in the mining sector after legal and regulatory hurdles. Electricity generation also witnessed double-digit growth for a consecutive month, growing 10.2 per cent.

Cement and steel sectors, considered vital for growth of the construction sector, showed mixed signs. The former grew 11.3 per cent after contracting the previous month, while the latter slowed further to 1.3 per cent. Refinery products grew 8.1 per cent.

There are some weak signs  among the eight industries. Natural gas continued to contract, although the pace of contraction has slowed. After contracting nine per cent in July, the pace of contraction had slowed to 2.9 per cent. Crude oil and fertiliser contracted 0.1 and 2.8 per cent, respectively.

Some other factors indicated IIP might upturn in November. Car sales had declined in October by 2.6 per cent and rose 9.5 per cent in November. Though, sales and production figures might not match one-to-one, these do indicate an impact on IIP numbers.

Beside, merchandise export rose 7.3 per cent in November, after contraction in October. India Ratings Chief Economist Devendra Pant said IIP in November will depend on how capital goods and consumer durables behave. In October, IIP contracted, despite a more than six per cent rise in core sector, as these two segments contracted.

Core sector Basically represents basic goods. As these goods are used for final products, IIP will have a positive bearing on the core sector output two-three months down the line, Pant said.

He said healthy cement production showed the construction industry picked up, in infrastructure or housing or both. However, as steel production was still showing a marginal growth, it was not clear whether this would affect construction or auto sectors. While long steel products are used in infrastructure, flat products are used in auto. Core sector does not give that break-up.

However, ICRA Senior Economist Aditi  Nayar said, "The pick-up in core sector growth in November, buttressed by double-digit growth in coal, cement and electricity, bodes well for industrial expansion in that month."

Pointing out that core sector data prima facie indicated mixed signs of economic recovery, industry chamber Assocham said the issues affecting domestic demand for steel and production of oil and gas in India must be addressed.