Hopes of a recovery waned today, with data for output growth of six core industries dropping to 1.8 per cent in July, the lowest in the current financial year, and significantly behind a 6.8 per cent growth in June and 5.1 per cent in July last year.
July's disappointing performance was mainly on account of a steep fall in the output of petroleum products. On a cumulative basis, however, the core sector grew 4 per cent against 3.5 per cent in the same period last year.
The core sector accounts for 26.68 per cent of the index of industrial production (IIP) and analysts widely expect July's IIP numbers to be lower after a 7.8 per cent expansion in June.
Although industry data for July is buoyant, with two-wheelers up 18.2 per cent, cars up 29.1 per cent, commercial vehicle up 5.1 per cent, we expect the July IIP to be at 5 per cent levels versus the surprisingly high 7.8 per cent reading in June,” said Rohini Malkani, economist, Citi India.
Jyotinder Kaur, economist with HDFC Bank, sees IIP stabilising at 3 to 4 per cent in the next two months. The July numbers are expected to be out on September 11.
Experts, however, say the June growth figures were unsustainable. “The slower growth is not very alarming though it is a steep dip, because a growth of 6.8 per cent in June was guided by various factors like fiscal support and an accommodative monetary policy. The factors might have been mitigated by drought. However, they are still in place, so the recovery will continue,” said Kaur.
She added that the sharp decline in the production of petroleum products was part of the commodity cycle, since inventory stocking was coming to an end and this would pull back industrial growth and stabilise it from the high levels of 6-7 per cent growth.
| ROLLBACK Performance of six core industries Base year: 1993-94 Sector-wise growth rate in production | ||||
| (In %) | Jul-08 | Jul-09 | April- July 08 | April- July 09 |
| Crude oil | -3 | -0.4 | -0.9 | -1.1 |
| Petroleum refinery | 11.8 | -14.4 | 5.4 | -6.9 |
| Coal | 5.5 | 9.7 | 7.7 | 12.2 |
| Electricity | 4.5 | 3.3 | 2.6 | 5.4 |
| Cement | 5.5 | 10.6 | 5.7 | 11.8 |
| Finished steel | 6 | 1.2 | 3.6 | 2.4 |
| Overall | 5.1 | 1.8 | 3.5 | 4.1 |
| Source: Department of Industry | ||||
Also, private refiner Reliance Industries Ltd took a 20-day maintenance shut-down of its refinery during the month, resulting in 40 per cent fall in production.
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Overall, petroleum refinery production fell 14.4 per cent in July, compared to 11.8 per cent growth during the corresponding period in 2008. Crude oil production, after registering positive growth of 4 per cent for the first time this fiscal in June, shrank 0.4 per cent in July. Crude oil production had contracted by 3 per cent in July 2008.
Despite a high base, both cement and coal posted strong growth, up 10.6 per cent and 9.7 per cent, respectively. “This could be attributed to the weak monsoon, which resulted in a delay in maintenance shutdowns,” said Malkani.