Big contraction in coal & gas output leads to big August dip; with IIP’s July poor-show, analysts underline urgency of boosting production.
In what may have repercussions for industrial growth in August, eight core industries grew at their slowest in 11 months at 3.5 per cent in that month, down more than half of their highest growth in a year, which was 7.8 per cent in July.
The major drop of these industries from 4.4 per cent in the same month last year could be attributed to contraction in coal and natural gas production by a shocking 15.3 per cent and 5.3 per cent, respectively.
The eight industries — crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel — have a weight of 37.90 per cent in the overall Index of Industrial Production (IIP), which measures industrial growth. Industrial growth had plummeted to a 21-month low of 3.3 per cent in July and that when the core sector had performed very well.
“The numbers are reflecting that it would not have a positive impact on the IIP in the coming months...IIP will be weak,” said Crisil’s principal economist, D K Joshi.
“If we look at the one-year pattern, the (IIP) numbers have been consistently low, with a few exceptions. Mining and manufacturing are suffering,” said Anis Chakravarty, director, Deloitte, Haskins & Sells.
According to him, the question really is, what are the factors responsible? Are the Reserve Bank (RBI) rate increases to be blamed? “If not, the government needs to look at what policy measures can be taken to boost production,” added Chakravarty.
RBI raised key rates by 25 basis points earlier this month, the 12th rise since March 2010, to tame inflation.
However, inflation continued to be over nine per cent for the nine months in a row till August this year, while growth numbers are bearing the brunt. Economic growth had declined to 7.7 per cent in the first quarter of 2011-12, the second quarter in a row to record sub-eight per cent expansion in national output.
In the April-August period, growth in coal production was also in the negative zone at 2.4 per cent, as against positive growth of 0.6 per cent in the corresponding period last year. Last year, coal production grew one per cent in August.
Natural gas was also seen as a big worrying factor, as its growth in production dropped to (-) 8.9 per cent in the April-August period versus a robust 27.8 per cent last year. Growth in electricity production also went down to 8.9 per cent in August, compared to 13 per cent in July.
With a weight of 10.32 per cent, the cumulative growth of electricity generation during April-August was 9.3 per cent viz-a-viz 4.5 per cent in the same period in 2010-11.
Crude oil registered growth of 1.6 per cent in August as against a whopping 15.2 per cent last year.
