Core sector output rises 5% in September

Numbers hint at IIP snapping two-month declining trend

Core sector output rose a three -month high of five per cent in September, mainly due to sustained growth in the steel sector and an increase in refinery production, broadly indicating that the Index of Industrial Production (IIP) growth may reverse a two-month declining trend a month before the festival season. The eight- industry core sector index had grown 3.2 per cent in August (and three per cent in July).

Data released by the commerce and industry ministry on Monday showed the eight core industries — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — had cumulative growth of 4.6 per cent in the six months up to September in the current financial year.

Comprising 38 per cent of IIP, the sectors had a lower growth of 2.4 per cent in the year-ago period.  “The pick-up in core sector growth in September 2016 is enthusing to the extent that it foretells a y-o-y (year-on-year) rise in the IIP after two months of contraction, building upon the uptick in expansion of non oil exports, healthy growth of auto production and inventory stocking prior to the festive season,” said Aditi Nayar, senior economist with ICRA.

Among all sectors, only steel production rose by double-digit figures, the same as last month. After a 37-month high growth of 17 per cent in August, steel output grew 16.3 per cent in September.

“Core sector growth in the last two months has benefitted from the sharp rise in steel production powered by various measures taken by the government that may get phased in the next few months,” Nayar said.

She, however, said domestic demand for steel has not recovered at a similar pace, casting some doubts on the sustainability of the recent steel growth.

Managing the second highest growth rate in September, refinery products rose 9.3 per cent. The sector continues to see wide swings in growth, with the rate having dropped to 3.5 per cent in August, from 13.7 per cent in July.

Fertiliser grew two per cent, after rising 5.7 per cent in August.

Electricity generation rose  2.2 per cent after a 0.1 per cent rise in August, slowest in the sector over nine months.

Cement production rose 5.5 per cent, greater than the 3.1 per cent in August. However, growth had been 10.3 per cent in June.

The same three sectors continued to contract in September as in August -- coal, crude oil and natural gas. The contraction in coal output was arrested slightly, with a 5.8 per cent fall in output from the 9.2 per cent decline in August.

Natural gas was down by 5.5 per cent, after falling 5.7 per cent in August. However, crude oil production continued to contract for a seventh month in September. The rate of fall also accelerated to 4.1 per cent, from 3.9 per cent in August.