Ray of hope from October core sector growth

The eight sectors, having 38% weight in the Index of Industrial Production, grew by a seven-month high of 5% in Sep and 2.3% in Aug

In hopeful news for a battered economy, eight core sectors grew at an eight-month high of 6.5 per cent in October against 0.4 per cent for the same period last year.

The sectors, which have 38 per cent weight in the Index of Industrial Production (IIP), grew by (a seven-month high of) five per cent in September and by 2.3 per cent in August.

However, high core sector growth is no guarantee of robust industrial production data. For example, industrial production contracted 0.4 per cent in September despite high growth in the core sector. Much depends on the capital goods sector, which has been showing consistent contraction.

The eight core industries referred to are coal, crude oil, refinery products, cement, natural gas, fertiliser, steel and electricity. Official data released today showed they grew at a combined average of 3.7 per cent in the first seven months of this financial year, against 4.3 per cent in the corresponding period of last year.

Coal output continued to show consistent growth, up 10.9 per cent. However, it was lower on a monthly basis than the 21.4 per cent in September. The other sectors that contributed to the robust growth were refinery products (20.3 per cent), steel (5.9 per cent) and cement (6.8 per cent).

Crude oil and natural gas continued to remain in a contractionary zone. Crude fell for a fifth consecutive month, by 0.4 per cent, versus a 1.7 per cent decline in September. Natural gas production fell 14.9 per cent; it fell 14.8 per cent in September and has been contracting for over a year.

Before this, it was only in February 2012 that these industries’ combined average grew at a higher pace, of 6.9 per cent. A low base effect and higher dispatches due to fuel supply agreements between monopolist Coal India with power companies are given by analysts as reasons for this substantial growth.

Cement production saw a fall of 6.8 per cent from the robust growth of 13.8 per cent in September. Electricity generation picked up, growing 5.2 per cent, after growth in the sector had slowed in the past three months. It grew just 3.9 per cent in September, albeit up from 1.9 per cent in August.

Fertilisers grew two per cent, after 5.7 per cent in September, which had been preceded by contraction for five months.