Oct core sector output falls after eight-month gap

Economists warn of negative IIP in October

The output of the core sector, comprising eight crucial industries, contracted for the first time in eight months in October, dashing hopes of an industrial recovery. This could translate into a decline in industrial production in the same month of the current financial year, economists said.

According to official data released on Monday, core sector production fell 0.6 per cent in October, the first fall since February, when it had fallen 2.4 per cent.

Core sector comprises almost 38 per cent of the Index of Industrial Production (IIP). “This is a definite indication that the IIP would be low or even negative in October,” said Madan Sabnavis, chief economist, CARE Ratings.

State Bank of India’s Chief Economic Advisor Soumya Kanti Ghosh said negative core-sector numbers may translate into possible decline of IIP in October. This is despite the fact that October is a festival month.

IIP growth is expected to remain subdued since it has a high base effect of 8.2 per cent for October 2012. The same base effect came into operation for the core sector. In October last year, the combined production of the eight industries rose 7.8 per cent, which made production index look smaller in October this year.

Four of the eight core industries — coal, crude oil, natural gas and refinery products — saw their production contract in October.

This means the mining sector continued to have woes and the 3.3 per cent growth seen in September this year may prove to be an aberration.

Fertiliser, steel, cement and electricity production rose in October. For September, only natural gas production had contracted.

Electricity generation rose just 1.3 per cent in October, whereas it had grown 12.6 per cent in the previous month.

Cement rose just one per cent in October against 11.5 per cent in September, while steel production expanded 3.5 per cent against 6.6 per cent. Fertiliser output rose 4.1 per cent against 5.3 per cent.

Overall, core sector production increased just 2.6 per cent growth in the first seven months of the current financial year against 6.8 per cent in the corresponding period of 2012-13.

“Both basic goods and electricity are covered under the core sectors. Production of electricity had been one of the lowest this month, which is a major let-down," said Sabnavis.