Core sector shrinks in Mar, first time in 17 months

Output falls 0.1% dragged down by cement

The country’s GDP (gross domestic product) growth has leapfrogged after revision in the methodology but the volume production of a third of the industry has refused to perk up. Output of the eight core sectors, which together have a weight of about 38 per cent in the index of industrial production, contracted 0.1 per cent in March, the first decline in 17 months.

The output of the core sector, mainly representing infrastructure, was particularly dragged down by a 4.2 per cent fall in cement output in March, its worst performance in 52 months, official data showed on Thursday.

Cumulatively, the growth in production in eight industries — coal, crude oil, refinery products, natural gas, fertilisers, cement, steel,  and electricity — slowed to 3.5 per cent from 4.2 per cent in 2013-14.

The monthly core sector growth rate had been falling rapidly since November, when it stood at 6.7 per cent. In December, January and February, growth rates were 2.4 per cent, 1.8 per cent and 1.4 per cent, respectively.

Besides cement, the fall in March was mainly on account of decline in production of steel, natural gas and refinery products that fell by 4.4 per cent, 4.2 per cent, 1.5 per cent and 1.3 per cent, respectively, according to data released by Ministry of Commerce and Industry on Thursday.  As a result, economists are concerned the Index of Industrial Production (IIP) will also disappoint in March.

“IIP will not be more than three per cent. The constant fall in the core numbers is a reflection of the fact that infrastructure projects have not really taken off, as was believed earlier. Recovery is going to be very slow. The government should give an impetus to infrastructure development as was stated in the Budget by the finance minister,” said Madan Sabnavis, chief economist at CARE Ratings.

Steel production in April-March rose a meagre 0.5 per cent against 11.5 per cent in the corresponding period the previous financial year. On the contrary, growth in coal output, with a weight of 4.38 per cent on IIP, rose six per cent in March and 8.2 per cent cumulatively in April-March year-on-year.

Surprisingly, though cement production declined in March, it grew at a faster rate cumulatively at 5.6 per cent in 2014-2015 against 3.1 per cent in 2013-2014.  

Aditi Nayar, senior economist, ICRA, said, “The subdued trend for cement production partly reflects curtailed demand on account of sub-optimal weather conditions for construction following bouts of heavy rainfall.”

She added the stagnation in the core sector, coupled with a 1.23 per cent decline in merchandise trade, would overshadow the slight uptick in automobiles production. As a result, she said, industrial growth was expected to show a moderate growth.

However, there is no one-to-one correlation between Industrial production data and core sector. For instance, industrial growth had risen to a three-month high of 5 per cent in February, while core sector growth was just 1.4 per cent.

After a change in methodology, the country’s economic growth had significantly improved to expected 7.4 per cent in 2014-15 against 6.9 per cent in the previous year. However, volume production is not  showing much signs of revival, even as IIP was reasonably high in February.