Core sector growth slumps to 2.3% in Nov

Lowest growth rate recorded since September 2002.

The growth in six core infrastructure industries slumped to the lowest level since September 2002, to 2.3 per cent, in November, primarily due to a steep fall in cement production during the month. Growth in all other sectors, except crude oil, decelerated during the month.

The core sector, which constitutes 26.68 per cent of the Index of Industrial Production (IIP), had grown at 8.6 per cent, revised upwards from an earlier provisional figure of 7 per cent, in October and at 5.9 per cent during the corresponding period in 2009.

Though the core sector data are considered volatile and fluctuating, economists said the drop in production in some sectors might be the result of unseasonal rains in many parts of the country during the month. This might have marred demand, affecting production.

 

“Part of the decline must be due to late rains. But cement production is expected to pick up later. Coal production is not doing well and that is affecting electricity generation. Going ahead, that might be a concern,” said Crisil India Principal Economist D K Joshi.

Joshi added the low core sector growth would pull IIP for November down and it would be less than the robust industrial growth rate of 10.8 per cent seen in October.

The core sector should optimally grow at a rate comparable to which the economy is growing, however, growth in the core sector has been lagging.

“Even as investments have picked up in the sector, things have to accelerate at a faster pace. Things are not as bearish as we would like them to be. It is difficult to say how the core sector would behave going ahead, as the data are quite fluctuating,” Joshi added.

With the Reserve Bank of India expected to raise key policy rates in the upcoming January monetary policy review to control inflationary expectations, the core sector and the industrial production are expected to see some pressure from rising interest rates.

However, till now, analysts did not see the dip in the infrastructure sector a result of increasing interest rates, Joshi added.

The steepest fall in production — of 11.6 per cent — has been in cement, which had grown by 9 per cent in the corresponding period last year and at 16.8 per cent in the previous month. Production of petroleum refinery products also saw a decline of 3.7 per cent during the month, compared to an expansion of 4.8 per cent in the corresponding month last year and a decline of 4.8 per cent in October.

Growth in coal and electricity generation decelerated to 0.7 per cent and 3.3 per cent in November, from 0.8 per cent and 8.3 per cent, respectively, in the previous month. The sectors had grown by 3.1 per cent and 9 per cent during the corresponding period last year.

Crude oil production saw a steep rise during the month, at 17.0 per cent, compared to 13.7 per cent in the previous month. However, growth in crude oil production was assisted by a low statistical base effect of last year, when the sector had registered a decline of 1.6 per cent.

Production of finished steel products grew 4.4 per cent, the same rate as in the previous month, and lower than the growth of 11.7 per cent in the same month last year.