Eight core industries performed below par in September, resulting in a disappointing industrial growth. The eight crucial sectors, having a weight of almost 38 per cent in the index of industrial production (IIP), grew by just 2.3 per cent in September year-on-year — the lowest in two-and-a-half years. The percentage was 3.3 in the corresponding month last year.
The latest set of data implies that the rest of the sectors in IIP will have to put up an extremely good show in September to push up industrial growth, which continued to be at below five per cent for the second month in a row in August. While consumer durable sectors are anyway facing the brunt of high interest rates, the capital goods sector is highly volatile.
There is an air of caution. “Don’t expect these numbers (core sector) to improve in the coming months,” says Madan Sabnavis, chief economist with CARE Ratings. “This will definitely have an impact on IIP numbers for the coming months,” he told Business Standard. The last time the IIP grew lower than the latest was in February 2009. That time, a wave of economic downturn pulled the percentage to an abysmal 0.93.
As for the ongoing 2011-12, the core sector grew in the first six months by 4.9 per cent against 5.6 per cent in the corresponding period of the last fiscal. In the six core industries, coal sector continued to be a drag. Its production declined 17.8 per cent in September on yearly basis, on top of 15.3 per cent fall in August.
This is the third time in the first six months of this fiscal that coal output declined in a month year-on-year. Mining in industrial production will have to bear the brunt of it, which, anyway, showed contraction in August for the second month this fiscal.
Besides coal, natural gas and fertilisers production also contracted in September. While natural gas production was down 6.4 per cent in September year-on-year, fertilisers fell 2.1 per cent. The lowest before this was in February 2009. Already, government has told Parliament’s standing committee that fertilisers will be in short supply this fiscal.
Analysts said at a time when monsoon is so good, fertilisers production is not showing up.
While there is demand from many quarters for the RBI to pause its tight monetary stance, analysts say a fall in production in these industries has nothing to do with interest rates. It is a larger policy issue, they note.
Heavy rains in coal mining areas and strike by workers in Coal India are stated to be among the main reasons for the downfall in coal production. Besides, the unrest in Andhra Pradesh’s Telangana region, which houses most of the mines of Singareni Collieries Company, are causing problems for the sector.
“Coal and natural gas have their own problems,” notes Samiran Chakraborty, head of research, Standard Chartered Bank. “It is more due to sectoral challenges like environmental clearance, land issues and low natural gas production in KG-D6 (Krishna-Godavari) basin. Unless there is growth in these important sectors over next few months, they may become a bottleneck for production in other sectors.”
Electricity generation and steel, however, performed quite well in an otherwise slowing down core industry. Electricity, which has 10.32 per cent weight in IIP, grew by 8.9 per cent in September, while steel production expanded by 6.6 per cent. Though much of the country’s electricity generation is dependent on coal, the requirements could be met with imports, analysts say.
While refinery products grew 4.4 per cent in September, cement grew by just 0.9 per cent in September year-on-year. Cement, analysts say, is a worrying side. Cement production grew by just 0.9 per cent in September. “There is no pick up in cement. Now, that will impact construction,” Sabnavis adds.
