Continuing its declining trend, the index of six core industries grew at its slowest pace in January 2009, as crude and petroleum products output went into the negative territory. However, cement was the only industry to grow at a faster pace on annual basis.
The index expanded by 1.4 per cent in January 2009, against 3.6 per cent in the year-ago month. Economists expect the Index of Industrial Production (IIP) to remain weak in the month under consideration, as the core industries constitute nearly 27 per cent of IIP.
After expanding 4.7 per cent in September 2008, the pace of growth in the core sector index has been declining steadily.
“The core sectors are a large block of the basic goods segment of the IIP. The 1.4 per cent growth in January is one of the lowest,” said a report prepared by Saugata Bhattacharya, vice-president, Axis Bank, who expects the IIP to dip by 1 per cent in the month under consideration.
The IIP had dipped by 2 per cent in December 2008, the worst performance by the index in the backdrop of dropping demand in the domestic, as well as overseas markets.
The key reason for muted growth in the core sector index was due to a unprecedented fall in crude oil production, which dipped by 8 per cent in the month, compared with a contraction of 0.2 per cent in the same month of the previous year. Moreover, petroleum products production also contracted in the month under consideration, as Indian refineries produced less.
In the absence of significant discoveries, and waning output from oil fields like Bombay High, production of the crude oil has been slipping. In the 22 months period between April 2007 and January 2009, production of crude oil has contracted in 14 months.
However, four other components of the core sector — cement, coal, electricity and finished (carbon) steel — expanded in the month under consideration.
“This could be because of the measures announced by the government to boost the economy,” said Soumendra Dash, chief economist, CARE Ratings.
The stimulus packages had announced a host of measures to boost infrastructure spending, as well as low-cost houses. Moreover, the government had also lowered excise duties on goods in a bid to boost demand. All these measures are expected to boost demand for cement and steel in housing and infrastructure projects, prompting factories to scale up production.
“We expect the core sector index to post an annual growth of over 3.5 per cent in 2008-09. Considering the current economic scenario, this is a good rate,” added Dash.
Electricity generation growth also has been dropping since September 2008, when it expanded by 4.2 per cent. Significantly, it is about the same time when the impact of the global economic crisis was felt in India, as factories started producing lesser goods, requiring lesser power.
Production of coal, a key ingredient in power plants, also expanded in the January 2009, but the pace was the slowest since August 2008.
